Japanese Foreign Exchange Intervention and the Yen/Dollar Exchange Rate: A Simultaneous Equations Approach Using Realized Volatility

Eric Hillebrand (), Gunther Schnabl () and Yasemin Ulu ()

No CESifo Working Paper No. 1766, CESifo Working Paper Series from CESifo Group Munich

Abstract: We use realized volatility to study the influence of central bank interventions on the yen/dollar exchange rate. Realized volatility is a technical innovation that allows specifying a system of equations for returns, realized volatility, and interventions without endogeneity bias. We find that during the period 1995 through 1999, interventions of the Japanese monetary authorities did not have the desired effect with respect to the exchange rate level and we measure an increase in volatility associated with interventions. During the period 1999 through 2004, the estimations are consistent with successful interventions, both in depreciating the yen and in reducing exchange rate volatility.

JEL-codes: C32 E58 F31 F33 G15 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-fin, nep-fmk, nep-ifn, nep-mac, nep-mon, nep-mst and nep-sea
Date: 2006
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