Do interactions between political authorities and central banks influence FX interventions? Evidence from Japan

Oscar Bernal

No 06-03.RS, DULBEA Working Papers from ULB -- Universite Libre de Bruxelles

Abstract: In the United States, Japan and the Euro Zone, FX interventions are institutionally decided by specific political authorities and implemented by central banks on their behalf. Bearing in mind that these specific political authorities and central banks might not necessarily pursue the same exchange rates objectives, the model proposed in this paper takes account explicitly of this institutional organisation to examine its effects on FX intervention activity. The empirical relevance of our theoretical model is assessed by developing a friction model on the Japanese experience between 1991 and 2004 which reveals how the magnitude of that country’s FX interventions is the outcome of the Japanese Ministry of Finance’s trade-off between attaining its own exchange rate target and one of the Bank of Japan’s.

Keywords: Central banks; Foreign exchange interventions; Interactions; Friction models. (search for similar items in EconPapers)
JEL-codes: E58 E61 F31 F37 G15 (search for similar items in EconPapers)
Date: 2006-04
New Economics Papers: this item is included in nep-cba, nep-fin, nep-fmk, nep-mac, nep-mon, nep-pol and nep-sea
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

Published by: ULB, DULBEA

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