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

Abstract

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

Foreign exchange market interventions and the $–¥ exchange rate in the long run

“…This is also true for Japan, although the evidence remains mixed. Some results suggest that interventions undertaken by the Japanese authorities have been effective (Dominguez, 2006;Taylor, 2005;Reitz and Taylor, 2012). 3 The findings of Fatum and Hutchinson (2005) provide evidence that even sterilized interventions by the Japanese authorities do influence the exchange rate.…”

“…We estimated a STR-VECM in which the transition function was very similar to Reitz and Taylor (2008). 23 See, for example, Reitz and Taylor (2012) for the dollar-yen exchange rate.…”

“…His results suggest that interventions are effective, as they increase the probability of real exchange rate stability. Reitz and Taylor (2012) utilize a smooth transition GARCH model for the period 1980 to 2004, which allows for non-linearities in the adjustment process.…”

Recent Experience of the Effects of Intervention on Exchange Rates

“…For (a), interventions in the foreign exchange market can be understood to affect the exchange rate by altering the foreign exchange rate risk premium ρ as noted by Reitz and Taylor (2012), for example. This situation presents evidence of some effectiveness of official interventions that use the portfolio balance channel.…”

The relationship between M3 and consumer price index in the Czech Republic

“…Most of these, however, focus only on how currency intervention influences exchange rate (e.g., Vitale, 2011;Reitz & Taylor, 2012). Fratzscher et al (2015) investigated the currency intervention of 33 central banks (including the CNB) from 1995 to 2011.…”