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A Structural Break in the Effects of Japanese Foreign Exchange Intervention on Yen/Dollar Exchange Rate VolatilityEric T. HillebrandUniversity of Aarhus - CREATES Gunther SchnablUniversity of Leipzig - Institute for Economic Policy; CESifo (Center for Economic Studies and Ifo Institute for Economic Research) June 2006 ECB Working Paper No. 650 Abstract: While up to the late 1990s Japanese foreign exchange intervention was fully sterilized, Japanese monetary authorities left foreign exchange intervention unsterilized when Japan entered the liquidity trap in 1999. According to previous research on foreign exchange intervention, unsterilized intervention has a higher probability of success than sterilized intervention. Based on a GARCH framework and change point detection, we test for a structural break in the effectiveness of Japanese foreign exchange intervention. We find a changing impact of Japanese foreign exchange intervention on exchange rate volatility at the turn of the millennium when Japanese foreign exchange intervention started to remain unsterilized.
Number of Pages in PDF File: 38 Keywords: Japan, Foreign Exchange Intervention, Exchange Rate Volatility, GARCH, Change Point Detection, Structural Breaks JEL Classification: E58, F31, F33, G15 working papers seriesDate posted: July 19, 2006Suggested CitationContact Information
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