The trend effect of foreign exchange intervention

Rasmus Fatum, Yohei Yamamoto and Binwei Chen

Journal of International Money and Finance, 2025, vol. 156, issue C

Abstract: The 2022 and the 2010–2011 Bank of Japan interventions provide an opportunity for investigating whether unusually large-scale and infrequent interventions are capable of generating trend effects. To this end, we estimate the counterfactual exchange rate and analyze structural changes in the level and the trend of the gap sequence between actual and counterfactual exchange rates. Our results show that the trend of the gap sequence reversed in the desired direction around the intervention dates, indicating that the intervention policy instrument is potentially powerful enough to generate long-term trend effects. This is an important insight not previously found in the intervention literature.

Keywords: Foreign Exchange Intervention; Counterfactual Exchange Rate; Currency Factors; Synthetic Control Methods; Structural Changes (search for similar items in EconPapers)
JEL-codes: C38 F31 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:156:y:2025:i:c:s0261560625000907

DOI: 10.1016/j.jimonfin.2025.103355

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