Friction model and foreign exchange market intervention

Jun, Jongbyung

doi:10.1016/j.iref.2007.03.002

Cited by 12 publications

(9 citation statements)

References 10 publications

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“…ENDNOTES 1 A compilation of empirical findings can be found in Meese and Rogoff (1988), Dominguez andFrankel (1993), Edison (1993), Dominguez (2003), Neely (2005), Menkhoff (2010), and Villamizar-Villegas and Perez-Reyna (2017). 2 See Almekinders and Eijffinger (1996), Guimaraes and Karacadag (2005), Huang (2007), Jun (2008), Humala and Rodríguez (2010), Rincón and Toro (2010), and Echavarría et al (2017). 3 See Kim, Kortian, and Sheen (2000), Kamil (2008), Adler and Tovar (2014), Villamizar-Villegas (2016), and Onder and Villamizar-Villegas (2015).…”

Section: Discussionmentioning

confidence: 99%

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Foreign exchange intervention revisited: A new way of estimating censored models

Ordoñez‐Callamand

Villamizar‐Villegas

Melo‐Velandia

2018

International Finance

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In this paper, we investigate a long‐standing issue in the international finance literature: namely, how to capture the behaviour of central banks when deciding foreign exchange policies. Essentially, the main empirical problem is that a researcher observes numerous large‐scale purchases of foreign currency but a general absence of sales. This asymmetry has motivated the use of heavily dependent parametric models. We take a fresh look at this problem by allowing for a more flexible estimation, robust to various model specifications. Our results indicate that our method outperforms some of the standard models used to date. Hence, our main contribution is to provide policymakers with an improved and readily accessible toolkit to evaluate their actions. To shed some light on this, we estimate policy functions for the cases of Turkey and Colombia and highlight marked differences with the related literature.

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Section: Discussionmentioning

confidence: 99%

“…See Almekinders and Eijffinger (), Guimaraes and Karacadag (), Huang (), Jun (), Humala and Rodríguez (), Rincón and Toro (), and Echavarría et al ().…”

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Foreign exchange intervention revisited: A new way of estimating censored models

Ordoñez‐Callamand

Villamizar‐Villegas

Melo‐Velandia

2018

International Finance

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“…(2005), Herrera and Ozbay (2005), Akinci, Culha, Ozlale, and Sahinbeyoglu (2006), Huang (2007), Ito and Yabu (2007), Kamil (2008), Jun (2008), Bernal and Gnabo (2009), Rincón and Toro (2010), Humala and Rodríguez (2010), Echavarría, Melo, Téllez, and Villamizar (2013), Adler and Tovar (2014), Onder and Villamizar-Villegas (2015), and Villamizar-Villegas (2015).…”

Section: Datamentioning

confidence: 99%

“…To overcome this endogeneity problem and to control for heteroskedastic errors due to the high frequency of exchange rates, authors such as Almekinders and Eijffinger (1996), Guimaraes and Karacadag (2005), Huang (2007) Jun (2008), Humala and Rodríguez (2010), Rincón and Toro (2010), and Echavarría, Melo, Téllez, and Villamizar (2013) model foreign exchange policy through the use of a Generalized Autoregressive Conditional Heteroskedasticity process (GARCH).…”

Section: Introductionmentioning

confidence: 99%

Foreign exchange intervention revisited : a new way of estimating censored models

Ordoñez‐Callamand¹,

Villamizar‐Villegas²,

Melo‐Velandia³

2016

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Most of the literature on the effectiveness of foreign exchange intervention has yet to reach a general consensus. In part, this is due to the different estimation methods in which exogenous variation is identified. In this sense, the use of heavily-dependent parametric models can sometimes condition the validity of results. In this paper we allow for a more flexible estimation of policy functions by using a censored least absolute deviation model, applied to a time-series framework. We first corroborate the properties of the estimators that we use through simulation exercises for cases in which: (i) the degree of censoring varies, (ii) errors are subject to conditional heteroskedasticity, (iii) the distribution of the errors varies, and (iv) when there are multiple censoring thresholds. The simulation exercises suggest that the estimator used is robust to both conditional heterosckedasticity and heavy tailed distributions in the error term. However, we show that misspecification, when considering a single-valued instead of multiple-valued thresholds, leads to an estimation bias. Finally, we carry out empirical estimations for the case of Turkey and Colombia and compare our findings with the related literature.

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“…This sterilisation aims to keep the monetary policy unchanged. The goals of sterilised interventions are not revealed by central banks; this has been extensively explored in the empirical literature (Almekinders and Eijffinger 1996; Jun 2008) and in literature reviews (Neely 2001). The main results suggest that these interventions tend to be conducted to reduce exchange rate misalignment or volatility in the foreign exchange market.…”

Section: Introductionmentioning

confidence: 99%

Sterilised Interventions within a Heterogeneous Expectation Exchange Rate Model: Evidence from the Reserve Bank of Australia

Maatoug

Fatnassi

Omri

2011

Australian Economic Review

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In this article, we study the effectiveness of central bank intervention within a heterogeneous expectation exchange rate model for the Reserve Bank of Australia. The empirical evidence is gathered by applying a Markovswitching approach to daily A$/US$ exchange data from December 1983 to April 2008. Our results support both chartist and fundamentalist regimes. It is shown that the two regimes are persistent and that the fundamentalist regime is riskier. Moreover, interventions when the chartist regime prevails increase the proportion of fundamentalists and thus exert a stabilising effect on the foreign exchange market.

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Friction model and foreign exchange market intervention

Cited by 12 publications

References 10 publications

Foreign exchange intervention revisited: A new way of estimating censored models

Foreign exchange intervention revisited: A new way of estimating censored models

Foreign exchange intervention revisited : a new way of estimating censored models

Sterilised Interventions within a Heterogeneous Expectation Exchange Rate Model: Evidence from the Reserve Bank of Australia

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