Kiel Working Papers, Kiel Institute for World Economics
No 1765:
FX Intervention in the Yen-US Dollar Market: A Coordination Channel Perspective
Mark P. Taylor Stefan Reitz
Abstract: The coordination channel has recently been established as
an additional means by which foreign exchange market intervention may be
effective. It is conjectured that strong and persistent misalignments of
the exchange rate are caused by a coordination failure among
fundamentals-based traders. In such situations official intervention may
act as a coordinating signal, encouraging traders to engage in stabilizing
speculation. We apply the framework developed in Reitz and Taylor (2008) to
daily data on the yen-US dollar exchange rate and on Federal Reserve and
Japanese Ministry of Finance intervention operations. The results provide
further support for the coordination channel of intervention
effectiveness
Keywords: foreign exchange intervention, coordination channel, STR-GARCH model; (follow links to similar papers)
JEL-Codes: C10,; F31,; F41; (follow links to similar papers)
27 pages, April 2012
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