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The Trend Effect of Foreign Exchange Intervention

Author

Listed:
  • FATUM, Rasmus
  • YAMAMOTO, Yohei
  • CHEN, Binwei

Abstract

The 2022 and the 2010-2011 Bank of Japan interventions provide an opportunity for investigating whether unusually large-scale and infrequent interventions are capable of generating trend effects. To this end, we estimate the counterfactual exchange rate and analyze structural changes in the level and the trend of the gap sequence between actual and counterfactual exchange rates. Our results show that the trend of the gap sequence reversed in the desired direction around the intervention dates, indicating that the intervention policy instrument is potentially powerful enough to generate long-term trend effects. This is an important insight not previously found in the intervention literature.

Suggested Citation

  • FATUM, Rasmus & YAMAMOTO, Yohei & CHEN, Binwei, 2023. "The Trend Effect of Foreign Exchange Intervention," Discussion paper series HIAS-E-132, Hitotsubashi Institute for Advanced Study, Hitotsubashi University.
    • Handle: RePEc:hit:hiasdp:hias-e-132
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    References listed on IDEAS

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    More about this item

    Keywords

    Foreign Exchange Intervention; Counterfactual Exchange Rate; Currency Factors; Synthetic Control Methods; Structural Changes;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • C38 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Classification Methdos; Cluster Analysis; Principal Components; Factor Analysis

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