Japanese foreign exchange intervention and the yen-to-dollar exchange rate: A simultaneous equations approach using realized volatility |
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| Authors: | Eric Hillebrand Gunther Schnabl Yasemin Ulu |
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| Institution: | 1. Louisiana State University, Department of Economics, Baton Rouge, LA 70803, United States;2. Universität Leipzig, Institute for Economic Policy, Marschnerstrasse 31, D-04109 Leipzig, Germany;3. Temple University, Department of Economics, 1801 N. Broad Street, Philadelphia, PA 19122, United States;1. University of Kent, School of Economics, Canterbury, UK;2. Center for Research in Econometric Analysis of Time Series (CREATES), Department of Economics and Business, Aarhus University, Denmark;3. Division of Economics, Center for Research and Teaching in Economics (CIDE), Mexico City, Mexico;1. Departamento de Física Fundamental y Experimental, Electrónica y Sistemas, Universidad de La Laguna, 38206 La Laguna, Tenerife, Spain;2. Departamento de Química Inorgánica, Universidad de La Laguna, 38206 La Laguna, Tenerife, Spain;3. Departamento de Ingeniería Química, Universidad de La Laguna, 38206 La Laguna, Tenerife, Spain;1. The Key Laboratory of Photonic Devices and Materials, Anhui Province, Anhui Institute of Optics and Fine Mechanics, Chinese Academy of Sciences, Hefei 230031, PR China;2. University of Science and Technology of China, Hefei 230022, PR China;3. University of Chinese Academy of Sciences, Beijing 100049, PR China;1. College of Materials Science and Engineering, China Jiliang University, Hangzhou 310018, PR China;2. Institute of Optoelectronic Technology, China Jiliang University, Hangzhou 310018, PR China;1. College of Materials Science and Engineering, China Jiliang University, Hangzhou, 310018, China;2. Laboratoire Verres & Céramiques, UMR CNRS 6226, Université de Rennes 1, Campus Beaulieu, 35042 Rennes Cedex, France |
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| Abstract: | We use realized volatility to study the influence of Japanese central bank interventions on the yen-to-dollar exchange rate. A system of equations for returns, logarithmic realized volatility, and interventions provides a comprehensive view on the problem without endogeneity bias, unlike earlier latent variable specifications. We find that during the period 1991 through 1995, interventions of the Japanese monetary authorities could not move the yen-to-dollar rate into the desired direction. We measure an increase in volatility associated with interventions. During the period 1995 through 1998, the estimations are consistent with interventions that successfully influenced returns. After 1998 up to the last intervention episode in 2004, interventions did not have a significant impact on returns but reduced realized exchange rate volatility. |
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