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Foreign Exchange Market Interventions and the $-¥ Exchange Rate in the Long-Run

Joscha Beckmann (), Ansgar Belke and Michael Kühl ()

No 428, Ruhr Economic Papers from RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen

Abstract: This paper tries to clarify the question of whether foreign exchange market interventions conducted by the Bank of Japan are important for the dollar-yen exchange rate in the long run. Our strategy relies on a re-examination of the empirical performance of a monetary exchange rate model. This is basically not a new topic; however, we put our focus on two new questions. Firstly, does the consideration of periods of massive interventions in the foreign exchange market help to uncover a potential long-run relationship between the exchange rate and its fundamentals? Secondly, do Forex interventions support the adjustment towards a long-run equilibrium value? Our overall results suggest that taking periods of interventions into account within a monetary model does improve the goodness of fit of an identified long-run relationship to a significant degree. Furthermore, Forex interventions increase the speed of adjustment towards long-run equilibrium in some periods, particularly in periods of coordinated forex interventions. Our results indicate that only coordinated interventions seem to stabilize the dollar-yen exchange rate in a long-run perspective. This is a novel contribution to the literature.

Keywords: structural exchange rate models; cointegration; intervention analysis (search for similar items in EconPapers)
JEL-codes: E44 F31 G12 (search for similar items in EconPapers)
Date: 2013
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https://www.econstor.eu/bitstream/10419/79252/1/756914949.pdf (application/pdf)

Related works:
Journal Article: Foreign exchange market interventions and the $-¥ exchange rate in the long run (2015) Downloads
Working Paper: Foreign Exchange Market Interventions and the $-¥ Exchange Rate in the Long Run* (2013) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:rwirep:428

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