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Self-selection and treatment effects in macroeconomics: Revisiting the effectiveness of foreign exchange intervention

Victor Pontines

CAMA Working Papers from Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University

Abstract: Along the lines of the treatment effects literature, this paper empirically revisits the issue of the so-called “intervention effect”, i.e., the effectiveness of official foreign exchange intervention on the movement of the exchange rate. We extended in a continuous treatment setting the inverse probability weights estimator developed by Jorda and Taylor (2015) and Angrist, Jorda and Kuersteiner (forthcoming) to control for self-selection bias. We then illustrate the application of this technique by examining the effectiveness of official daily interventions by Japanese monetary authorities in the JPY/USD market. In accordance with existing evidence using this intervention data, this paper finds that periods of intervention characterized by large, infrequent and sporadic interventions are effective in moving the changes in the exchange rate in the desired direction. We also find evidence that the intervention effect does not last longer than two days after the intervention takes place.

Keywords: Foreign Exchange Intervention; Self-selection; JPY/USD Exchange Rate; Censored Data; Tobit; Inverse Probability Weights; Local Projections (search for similar items in EconPapers)
JEL-codes: C14 C32 E52 E58 F31 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2018-03
New Economics Papers: this item is included in nep-ifn, nep-mac and nep-mon
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Citations: View citations in EconPapers (3)

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Working Paper: Self-selection and Treatment Effects in Macroeconomics: Revisiting the Effectiveness of Foreign Exchange Intervention (2018) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:een:camaaa:2018-13

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