EconPapers    
Economics at your fingertips  
 

Intervention policy of the BoJ: A unified approach

Michel Beine (), Oscar Bernal, Jean-Yves Gnabo and Christelle Lecourt

Journal of Banking & Finance, 2009, vol. 33, issue 5, 904-913

Abstract: Intervening in the FX market implies a complex decision process for central banks. Monetary authorities have to decide whether to intervene or not, and if so, when and how. Since the successive steps of this procedure are likely to be highly interdependent, we adopt a nested logit approach to capture their relationships and to characterize the prominent features of the various steps of the intervention decision process. Our estimations based on Japanese data from 1991 to 2004 indicate that the Bank of Japan: (i) mainly reacted to deviations of the exchange rate with respect to fundamentals and (ii) tended to favour secrecy when its credibility was low. We also provide new insights on the so-called secrecy puzzle by modeling explicitly the risk for a secret intervention to be detected. Our results have important implications in terms of exchange rate policy, such as the emergence of a trade-off between intervention size, communication policy and secrecy. Our results tend to provide some explanation for the observed persistence of ineffective intervention policy during some sub-periods.

Keywords: FX; intervention; Secrecy; puzzle; Market; detection; Nested; Logit (search for similar items in EconPapers)
Date: 2009
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13) Track citations by RSS feed

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0378-4266(08)00232-X
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Intervention Policy of the BoJ: A Unified Approach (2007) Downloads
Working Paper: Intervention Policy of the BoJ: a Unified Approach (2007) Downloads
Working Paper: Intervention Policy of the BoJ: a Unified Approach (2007) Downloads
Working Paper: Intervention policy of the BoJ: a unified approach (2006) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:33:y:2009:i:5:p:904-913

Access Statistics for this article

Journal of Banking & Finance is currently edited by Ike Mathur

More articles in Journal of Banking & Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().

 
Page updated 2021-08-24
Handle: RePEc:eee:jbfina:v:33:y:2009:i:5:p:904-913