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Interventions in the Yen-dollar spot market : a story of price, volatility and volume

Please use this identifier to cite or link to this item: http://hdl.handle.net/1959.14/74221

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Title: Interventions in the Yen-dollar spot market : a story of price, volatility and volume
Related: Journal of banking and finance, Vol. 30, Issue 11, p.3191-3214
DOI: 10.1016/j.jbankfin.2005.12.005
Publisher: Elsevier
Date: 2006
FoR/RFCD Code(s): 010200 Applied Mathematics 150200 Banking, Finance and Investment
Author/Creator: Kim, Suk-Joong
Author/Creator: Sheen, Jeffrey
Description: We test the effectiveness of Bank of Japan (BOJ)’s foreign exchange interventions on conditional first and second moments of exchange rate returns and traded volumes, using a bivariate EGARCH model of the Yen/USD market from 5-13-1991 to 3-16-2004. We also estimate a friction model of BOJ’s intervention reaction function based on reducing short-term market disorderliness and supplementing domestic monetary policy. Important finding of this study are that: (i) we find ineffectiveness of BOJ interventions in influencing exchange rate trends pre-1995, in general, but effectiveness post-1995; (ii) FED intervention amplified the effectiveness of the BOJ transactions; (iii) interventions amplified market volatility and volumes through a ‘learning by trading’ process; (iv) BOJ’s interventions were based on ‘leaning against the wind’ motivations on the exchange rate trend and volumes; and (v) BOJ interventions were vigorously used in support of domestic monetary policy objectives post-1995. Though some of our findings confirm recent studies, our analysis goes deeper to provide new findings with important implications for central banks and foreign exchange market participants.
Description: 24 page(s)
Subject Keyword: 010200 Applied Mathematics
Subject Keyword: 150200 Banking, Finance and Investment
Subject Keyword: foreign exchange intervention
Subject Keyword: Bank of Japan
Subject Keyword: exchange rate volatility
Subject Keyword: trade volume
Resource Type: journal article
Organisation: Macquarie University. Dept. of Economics

Identifier: http://hdl.handle.net/1959.14/74221
Identifier: ISSN:0378-4266
Identifier: mq-rm-2008004852
Language: eng
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