Foreign Exchange Market Interventions and the $-¥ Exchange Rate in the Long Run

35 Pages Posted: 17 Aug 2013

See all articles by Joscha Beckmann

Joscha Beckmann

University of Duisburg-Essen - Department of Economics and Business Administration

Ansgar Hubertus Belke

University of Duisburg-Essen - Department of Economics and Business Administration; IZA Institute of Labor Economics; Centre for European Policy Studies

Michael Kuehl

Deutsche Bundesbank - Economics Department

Date Written: July 1, 2013

Abstract

This paper tries to clarify the question of whether foreign exchange market interventions conducted by the Bank of Japan are important for the dollar-yen exchange rate in the long run. Our strategy relies on a re-examination of the empirical performance of a monetary exchange rate model. This is basically not a new topic; however, we put our focus on two new questions. Firstly, does the consideration of periods of massive interventions in the foreign exchange market help to uncover a potential long-run relationship between the exchange rate and its fundamentals? Secondly, do Forex interventions support the adjustment towards a long-run equilibrium value? Our overall 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. This is a novel contribution to the literature.

Keywords: Structural exchange rate models, cointegration, intervention analysis

JEL Classification: E44, F31, G12

Suggested Citation

Beckmann, Joscha and Belke, Ansgar Hubertus and Kühl, Michael, Foreign Exchange Market Interventions and the $-¥ Exchange Rate in the Long Run (July 1, 2013). Ruhr Economic No. 428, Available at SSRN: https://ssrn.com/abstract=2309938 or http://dx.doi.org/10.2139/ssrn.2309938

Joscha Beckmann (Contact Author)

University of Duisburg-Essen - Department of Economics and Business Administration ( email )

Universitätsstr. 9
Essen, 45141
Germany

Ansgar Hubertus Belke

University of Duisburg-Essen - Department of Economics and Business Administration ( email )

Universitätsstr. 9
Essen, 45141
Germany

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Centre for European Policy Studies ( email )

1 Place du Congres, 1000
Brussels, 1000
Belgium

Michael Kühl

Deutsche Bundesbank - Economics Department ( email )

Wilhelm-Epstein-Strasse 14
60431 Frankfurt am Main
Germany

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