On the determinants of “small” and “large” foreign exchange market interventions: The case of the Japanese interventions in the 1990s |
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Authors: | Michael Frenkel Georg Stadtmann |
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Affiliation: | a Department of Economics, WHU Koblenz, Burgplatz 2, 56179 Vallendar, Germany b Kiel Institute for World Economics, Duesternbrooker Weg 120, 24100 Kiel, Germany c Institute for Development Strategies, Indiana University, Bloomington, IN, USA |
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Abstract: | During the past 30 years, central banks have often intervened in foreign exchange markets, and the magnitude of their foreign exchange market interventions has varied widely. We develop a quantitative reaction function model that renders it possible to examine the determinants of “small” and “large” interventions. We apply the model to analyzing the intervention policy of the Japanese monetary authorities (JMA) in the yen/U.S. dollar market during the period from 1991 through 2001. To this end, we use recently released official data on the foreign exchange market interventions of the JMA. We find that the JMA tended to conduct large interventions when the yen/U.S. dollar exchange rate drifted away from an “implicit target exchange rate.” |
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Keywords: | Exchange rates Central bank intervention policy Reaction function Ordered probit model |
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