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Foreign-exchange intervention strategies and market expectations: insights from Japan

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Date
2009-05
Dewey
Economie financière
Sujet
Marchés financiers internationaux; Risk-neutral; Communication policy; Event studies; Central bank interventions; Banques centrales; International finance
JEL code
F31; E44; E58; G15; C22
Journal issue
Journal of International Financial Markets, Institutions and Money
Volume
19
Number
3
Publication date
07-2009
Article pages
432-446
Publisher
Elsevier
DOI
http://dx.doi.org/10.1016/j.intfin.2008.05.002
URI
https://basepub.dauphine.fr/handle/123456789/647
Collections
  • DRM : Publications
Metadata
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Author
Gnabo, Jean-Yves
Teiletche, Jérôme
Type
Article accepté pour publication ou publié
Abstract (EN)
This study extends the traditional set of central bank's interventions to include official announcements in order to provide empirical evidence on two pivotal questions: (i) are FX authorities able to influence market expectations with different instruments? (ii) how should interventions be designed to have the greatest impact? Using Japanese data over 1992–2004 and an event-study approach, we estimate the effect of different strategies on the USD/JPY exchange-rate risk-neutral density. Overall, transparent policies (public and oral interventions) appear to be the most effective. Moreover, the effect is greater when policies involve a financial cost (risk) suggesting that simple announcements can only be deemed as an imperfect substitute for actual interventions.

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