A structural break in the effects of Japanese foreign exchange intervention on yen/dollar exchange rate volatility |
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| Authors: | Eric Hillebrand Gunther Schnabl |
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| Institution: | (1) Department of Economics, Louisiana State University, Baton Rouge, LA 70803, USA;(2) Department of Economics and Business Administration, Leipzig University, Marschnerstr. 31, 04109 Leipzig, Germany |
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| Abstract: | We study the impact of Japanese foreign exchange intervention on the volatility of the yen/dollar exchange rate since the
early 1990’s in a GARCH framework with interventions as exogenous variables. Using daily intervention data provided by the
Japanese Ministry of Finance, we show that the effect of interventions varies over time. From 1991 up to the late 1990’s,
Japanese foreign exchange intervention is associated with an increase in volatility of the yen/dollar exchange rate. After
the year 1997, Japanese foreign exchange intervention correlates with reductions in exchange rate volatility. This can be
explained by the fact that Japanese foreign exchange intervention remained quasi unsterilized in the liquidity trap.
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| Keywords: | Exchange rate volatility Foreign exchange intervention Structural break GARCH Change points Japan |
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