The Risk Premium in Forward Foreign Exchange Markets and G-3 Central Bank Intervention : Evidence of Daily Effects, 1985-1990

Baillie, Richard T.; Osterberg, William P.

doi:10.26509/frbc-wp-199109

Cited by 6 publications

(1 citation statement)

References 27 publications

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“…Studies since the early 1990s have primarily focused on the signaling channel theory, which involves expectation formation and information transmission. Baillie and Humpage (1992) and Baillie and Osterberg (1991), used GARCH models to analyze exchange rate volatility and concluded that central bank interventions, although having a small effect on exchange rate levels, did not significantly affect volatility. However, Dominguez (1993) investigated the signaling channel for the USD/JPY and USD/MARK exchange rates between 1985 and 1991 using daily and weekly GARCH frameworks with a conditional Student t distribution and found that interventions effectively impacted exchange rate volatility, although the distinction between official and secret interventions affected the correlation between interventions and volatility measures.…”

Section: Literature Review and Hypothesesmentioning

confidence: 99%

The effectiveness of foreign exchange interventions in Japan

Guyot,

Montgomery,

Sheng

2023

J Infrastruct Policy Dev

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This study informs the academic and policy debate on the policy effectiveness of exchange rate interventions on exchange rate levels and volatility. Using a constructed data set comprising daily data on exchange rates, monetary policy fundamentals, exchange rate intervention dates and magnitudes of those interventions as well as financial news speculation of such interventions, we empirically estimate the policy effectiveness of Bank of Japan interventions in the exchange rate over the 12-year period between 2010 and 2022. This allows us to investigate the policy effectiveness of a variety of exchange rate interventions, or news of exchange rate interventions, across different time-horizons. We find that policy interventions in the yen exchange rate are more effective over short-horizons than long-horizons, more effective when the policy objective is a competitive devaluation of the yen rather than a revaluation, and more effective at influencing the level of the yen against major world currencies other than the US dollar. In fact, for the yen-dollar rate, we find that policy interventions may have the unintended consequences of weakening the yen (when the policy intention is to strengthen it) and increasing volatility in the yen-dollar exchange rate.

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Section: Literature Review and Hypothesesmentioning

confidence: 99%

The effectiveness of foreign exchange interventions in Japan

Guyot,

Montgomery,

Sheng

2023

J Infrastruct Policy Dev

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Intervention and the foreign exchange risk premium: An empirical investigation of daily effects

Humpage

Osterberg

1992

Global Finance Journal

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Currency markets have witnessed a sharp increase in government intervention since 1985. Many observers believe that this intervention promoted the dollar's depreciation between 1985 and early 1987, and that intervention has since helped to stabilize dollar exchange rates. This paper tests for a systematic effect of daily dollar intervention on exchange rate risk premia. We test for both portfolio balance effects and signaling influences by using daily data on central bank intervention (in dollars) against both the yen and the West German mark. Following work by Dominguez (1989) and Loopesko (1984), we measure the daily risk premium in terms of the deviation from uncovered interest parity. However, we follow other empirical analyses of exchange rates and allow for generalized conditional autoregressive heteroscedasticity (GARCH). Some evidence is found for both the portfolio balance and signaling channels.

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Short-term speculators and the puzzling behaviour of exchange rates

Osler

1998

Journal of International Economics

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The Risk Premium in Forward Foreign Exchange Markets and G-3 Central Bank Intervention : Evidence of Daily Effects, 1985-1990

Cited by 6 publications

References 27 publications

The effectiveness of foreign exchange interventions in Japan

The effectiveness of foreign exchange interventions in Japan

Intervention and the foreign exchange risk premium: An empirical investigation of daily effects

Short-term speculators and the puzzling behaviour of exchange rates

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