Abstract
This paper estimates and analyzes the reaction function of Japanese intervention in the foreign exchange (Forex) markets, using daily Japanese intervention data from April 1, 1991 to December 31, 2002. A theoretical friction model is adopted to describe the intervention as cost-minimizing behavior. An ordered probit model, consistent with the theoretical model, is employed to estimate authorities' reaction function. A noise-to-signal ratio is applied in selecting the optimal cutoff point in estimated ordered probit function. Major findings are as follows: (1) A regime change in June 1995 from small-scale frequent interventions to large-scale infrequent interventions is detected; (2) the optimum cutoff is higher in the first half than the second half.
| Original language | English |
|---|---|
| Pages (from-to) | 193-212 |
| Number of pages | 20 |
| Journal | Journal of International Money and Finance |
| Volume | 26 |
| Issue number | 2 |
| DOIs | |
| Publication status | Published - 2007 Mar |
| Externally published | Yes |
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Keywords
- Central bank intervention
- Foreign exchange rates
- Ordered probit
- Political cost
ASJC Scopus subject areas
- Economics and Econometrics
- Finance
Cite this
What prompts Japan to intervene in the Forex market? A new approach to a reaction function. / Ito, Takatoshi; Yabu, Tomoyoshi.
In: Journal of International Money and Finance, Vol. 26, No. 2, 03.2007, p. 193-212.Research output: Contribution to journal › Article
}
TY - JOUR
T1 - What prompts Japan to intervene in the Forex market? A new approach to a reaction function
AU - Ito, Takatoshi
AU - Yabu, Tomoyoshi
PY - 2007/3
Y1 - 2007/3
N2 - This paper estimates and analyzes the reaction function of Japanese intervention in the foreign exchange (Forex) markets, using daily Japanese intervention data from April 1, 1991 to December 31, 2002. A theoretical friction model is adopted to describe the intervention as cost-minimizing behavior. An ordered probit model, consistent with the theoretical model, is employed to estimate authorities' reaction function. A noise-to-signal ratio is applied in selecting the optimal cutoff point in estimated ordered probit function. Major findings are as follows: (1) A regime change in June 1995 from small-scale frequent interventions to large-scale infrequent interventions is detected; (2) the optimum cutoff is higher in the first half than the second half.
AB - This paper estimates and analyzes the reaction function of Japanese intervention in the foreign exchange (Forex) markets, using daily Japanese intervention data from April 1, 1991 to December 31, 2002. A theoretical friction model is adopted to describe the intervention as cost-minimizing behavior. An ordered probit model, consistent with the theoretical model, is employed to estimate authorities' reaction function. A noise-to-signal ratio is applied in selecting the optimal cutoff point in estimated ordered probit function. Major findings are as follows: (1) A regime change in June 1995 from small-scale frequent interventions to large-scale infrequent interventions is detected; (2) the optimum cutoff is higher in the first half than the second half.
KW - Central bank intervention
KW - Foreign exchange rates
KW - Ordered probit
KW - Political cost
UR - http://www.scopus.com/inward/record.url?scp=33847198335&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=33847198335&partnerID=8YFLogxK
U2 - 10.1016/j.jimonfin.2006.12.001
DO - 10.1016/j.jimonfin.2006.12.001
M3 - Article
AN - SCOPUS:33847198335
VL - 26
SP - 193
EP - 212
JO - Journal of International Money and Finance
JF - Journal of International Money and Finance
SN - 0261-5606
IS - 2
ER -