Foreign exchange market interventions and the $–¥ exchange rate in the long run |
| |
Authors: | Joscha Beckmann Michael Kühl |
| |
Institution: | 1. Chair for Macroeconomics, Department of Economics, University of Duisburg-Essen, Essen D-45117, Germany;2. Deutsche Bundesbank, Economics Department, 60431 Frankfurt, Germany |
| |
Abstract: | This article examines whether foreign exchange market interventions conducted by the Bank of Japan are important for the dollar–yen exchange rate in the long run. We rely on a re-examination of the empirical performance of a monetary exchange rate model. This is basically not a new topic; however, we focus on two new questions. First, does the consideration of periods of massive interventions in the foreign exchange market uncover a potential long-run relationship between the exchange rate and its fundamentals? Second, do Forex interventions support the adjustment towards a long-run equilibrium value? Our results suggest that taking periods of interventions into account within a monetary model does improve the goodness of fit of an identified long-run relationship to a significant degree. Furthermore, Forex interventions increase the speed of adjustment towards long-run equilibrium in some periods, particularly in periods of coordinated forex interventions. Our results indicate that only coordinated interventions seem to stabilize the dollar–yen exchange rate in a long-run perspective. |
| |
Keywords: | structural exchange rate models cointegration intervention analysis |
|
|