Japanese foreign exchange intervention and the yen-to-dollar exchange rate: A simultaneous equations approach using realized volatility

TY - JOUR

T1 - Japanese foreign exchange intervention and the yen-to-dollar exchange rate

T2 - A simultaneous equations approach using realized volatility

AU - Hillebrand, Eric

AU - Schnabl, Gunther

AU - Ulu, Yasemin

PY - 2009/7

Y1 - 2009/7

N2 - 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.

AB - 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.

KW - Foreign exchange intervention

KW - GMM

KW - Japan

KW - Realized volatility

KW - Structural change

UR - http://www.scopus.com/inward/record.url?scp=67349287781&partnerID=8YFLogxK

U2 - 10.1016/j.intfin.2008.06.002

DO - 10.1016/j.intfin.2008.06.002

M3 - Journal article

AN - SCOPUS:67349287781

SN - 1042-4431

VL - 19

SP - 490

EP - 505

JO - Journal of International Financial Markets, Institutions and Money

JF - Journal of International Financial Markets, Institutions and Money

IS - 3

ER -