Foreign exchange market intervention and expectations: The yen/dollar exchange rate

Galati, Gabriele; Melick, William R.; Micu, Marian

doi:10.1016/j.jimonfin.2005.07.004

Cited by 92 publications

(122 citation statements)

References 31 publications

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“…Consistent with Bonser-Neal and Tanner (1996), Galati, Melick and Micu (2005) and others, we find evidence that surprises regarding macroeconomic news affect exchange rate fluctuations across all three exchange rates in our sample. However, since we are using an event study approach in order to focus on the impact of monetary policy changes (and not a time-series analysis), our regression models described by equations 1) and 2) only incorporate the announcement surprises on days coinciding with the 42 monetary policy changes in our sample while our regression models described by equation 3) only incorporate the announcement surprises coinciding with the same 42 days leaded one day at a time (as k goes from 1 to 60).…”

Section: Macroeconomic Newssupporting

confidence: 91%

“…Specifically, we control for the types of macroeconomic news that Bonser-Neal and Tanner (1996) and, more recently, Galati, Melick and Micu (2005) have found to impact exchange rates. We do so by incorporating several variables that capture the surprise element of US macroeconomic news and policy developments regarding CPI (CPI-UNEXP), PPI (PPI-UNEXP), industrial production (IP-UNEXP), the unemployment rate (UNEM-UNEXP) and the trade balance (TRDE-UNEXP).…”

Section: Exchange Rate Responses To Actual Monetary Policy Changesmentioning

confidence: 99%

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Monetary Policy News and Exchange Rate Responses: Do Only Surprises Matter?

Fatum

Scholnick

2005

SSRN Journal

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Abstract: This paper shows that exchange rates respond to only the surprise component of an actual US monetary policy change and that failure to disentangle the surprise component from the actual monetary policy change can lead to an underestimation of the impact of monetary policy, or even to a false acceptance of the hypothesis that monetary policy has no impact on exchange rates. This finding implies that there is a need for reexamining the empirical analyses of asset price responses to macro news that do not isolate the unexpected component of news from the expected element. In addition, we add to the debate on how quickly exchange rates respond to news by showing that the exchange rates under study absorb monetary policy surprises within the same day as the news are announced. Terms of use: Documents in

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Section: Macroeconomic Newssupporting

confidence: 91%

Section: Exchange Rate Responses To Actual Monetary Policy Changesmentioning

confidence: 99%

Monetary Policy News and Exchange Rate Responses: Do Only Surprises Matter?

Fatum

Scholnick

2005

SSRN Journal

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“…Moreover, intervention, or even the threat of intervention, can affect market expectations and actions in ways that such criteria cannot easily capture. Galati, Melick, and Micu (2005), for example, investigate how the higher moments of market expectations, which they derive from the distribution of option prices, respond to intervention.…”

Section: Conclusion and Discussionmentioning

confidence: 99%

The Federal Reserve as an Informed Foreign-Exchange Trader: 1973-1995

Humpage¹

2011

Working Paper (Federal Reserve Bank of Cleveland)

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If offi cial interventions convey private information useful for price discovery in foreign-exchange markets, then they should have value as a forecast of near-term exchange-rate movements. Using a set of standard criteria, we show that approximately 60 percent of all U.S. foreign-exchange interventions between 1973 and 1995 were successful in this sense. This percentage, however, is no better than random. U.S. intervention sales and purchases of foreign exchange were incapable of forecasting dollar appreciations or depreciations. U.S. interventions, however, were associated with more moderate dollar movements in a manner consistent with leaning against the wind, but only about 22 percent of all U.S. interventions conformed to this pattern. We also found that the larger the size of an intervention, the greater was its probability of success, although some interventions were ineffi ciently large. Other potential characteristics of intervention, notably coordination and secrecy, did not seem to infl uence our success rates. There is no evidence, nor does anybody here [in the FOMC] believe that there is any evidence, to confirm that sterilized intervention does anything.

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“…Regarding Federal Reserve intervention Bonser-Neal and Tanner (1996) estimate the probability that Federal Reserve intervention actually occurred given that it was reported in the Wall Street Journal was 0.76, while the probability that Federal Reserve intervention was reported given that it actually occurred was 0.69. Galati et al (2005) finds that Reuters reports are a relatively accurate indicator of actual Ministry of Finance interventions. The probability that an intervention was reported and perceived by traders, given that it actually occurred, was 0.77.…”

Section: [Figure 1]mentioning

confidence: 99%

“…Of course, the official release of intervention data in the mid 2000s already started a growing literature studying the motives and effectiveness of Japanese foreign exchange interventions. Contributions such as Hutchison (2005, 2006), Frenkel et al (2005), Galati et al (2005), and Ito (2003Ito ( , 2005Ito ( , 2006 reveal that the Ministry of Finance aimed to 'calm disorderly markets' and supported some target level thereby systematically affected the exchange rate, at least in the short run.…”

Section: Introductionmentioning

confidence: 99%

FX intervention in the Yen-US dollar market: a coordination channel perspective

Reitz

Taylor

2012

Int Econ Econ Policy

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in FX Intervention in the Yen-US Dollar Market: A Coordination Channel PerspectiveStefan Reitz and Mark P. Taylor Abstract:The coordination channel has recently been established as an additional means by which foreign exchange market intervention may be effective. It is conjectured that strong and persistent misalignments of the exchange rate are caused by a coordination failure among fundamentals-based traders. In such situations official intervention may act as a coordinating signal, encouraging traders to engage in stabilizing speculation. We apply the framework developed in Reitz and Taylor (2008) ABSTRACTThe coordination channel has recently been established as an additional means by which foreign exchange market intervention may be effective. In Sarno and Taylor (2001) it is conjectured that strong and persistent misalignments of the exchange rate are caused by a coordination failure among fundamentals-based traders. In such situations official intervention may act as a coordinating signal, encouraging traders to engage in stabilizing speculation. We apply the framework developed in Reitz and Taylor (2008) to daily data on the yen-US dollar exchange rate and on Federal Reserve and Japanese Ministry of Finance intervention operations. The results provide further support for the coordination channel of intervention effectiveness.JEL classification: C10; F31, F41

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Foreign exchange market intervention and expectations: The yen/dollar exchange rate

Cited by 92 publications

References 31 publications

Monetary Policy News and Exchange Rate Responses: Do Only Surprises Matter?

Monetary Policy News and Exchange Rate Responses: Do Only Surprises Matter?

The Federal Reserve as an Informed Foreign-Exchange Trader: 1973-1995

FX intervention in the Yen-US dollar market: a coordination channel perspective

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