A stopping time approach to assessing the effectiveness of foreign exchange intervention: An application to Japanese data

Research output: Contribution to journalArticle

1 Citation (Scopus)

Abstract

I propose a new methodology to assess the effect of foreign exchange (FX) intervention, based on the probability of an FX rate reaching. The variable is the probability of an FX rate reaching a particular threshold before reaching another. Importantly, the probability depends on not only the level, but also the trend and volatility of a current FX rate. When an intervention changes the probability in a desired direction, the intervention is effective. The notable feature of the probability is that it considers both the level and volatility of an FX rate comprehensively, while previous studies have examined these effects of FX intervention separately. Empirical results based on regression and nearest-neighbor analyses applied to Japanese data indicate that publicity and size are significant in the effectiveness of intervention.

Original languageEnglish
Pages (from-to)32-46
Number of pages15
JournalJournal of International Money and Finance
Volume75
DOIs
Publication statusPublished - 2017 Jul 1

Fingerprint

Stopping time
Foreign exchange intervention
Methodology
Empirical results
Nearest neighbor
Publicity

Keywords

  • Foreign exchange intervention
  • Nearest-neighbors matching analysis
  • Probability reaching a threshold

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

Cite this

@article{bdf0d028cb9a491cb416130fd25af01a,
title = "A stopping time approach to assessing the effectiveness of foreign exchange intervention: An application to Japanese data",
abstract = "I propose a new methodology to assess the effect of foreign exchange (FX) intervention, based on the probability of an FX rate reaching. The variable is the probability of an FX rate reaching a particular threshold before reaching another. Importantly, the probability depends on not only the level, but also the trend and volatility of a current FX rate. When an intervention changes the probability in a desired direction, the intervention is effective. The notable feature of the probability is that it considers both the level and volatility of an FX rate comprehensively, while previous studies have examined these effects of FX intervention separately. Empirical results based on regression and nearest-neighbor analyses applied to Japanese data indicate that publicity and size are significant in the effectiveness of intervention.",
keywords = "Foreign exchange intervention, Nearest-neighbors matching analysis, Probability reaching a threshold",
author = "Yoshihiro Kitamura",
year = "2017",
month = "7",
day = "1",
doi = "10.1016/j.jimonfin.2017.04.005",
language = "English",
volume = "75",
pages = "32--46",
journal = "Journal of International Money and Finance",
issn = "0261-5606",
publisher = "Elsevier BV",

}

TY - JOUR

T1 - A stopping time approach to assessing the effectiveness of foreign exchange intervention

T2 - An application to Japanese data

AU - Kitamura, Yoshihiro

PY - 2017/7/1

Y1 - 2017/7/1

N2 - I propose a new methodology to assess the effect of foreign exchange (FX) intervention, based on the probability of an FX rate reaching. The variable is the probability of an FX rate reaching a particular threshold before reaching another. Importantly, the probability depends on not only the level, but also the trend and volatility of a current FX rate. When an intervention changes the probability in a desired direction, the intervention is effective. The notable feature of the probability is that it considers both the level and volatility of an FX rate comprehensively, while previous studies have examined these effects of FX intervention separately. Empirical results based on regression and nearest-neighbor analyses applied to Japanese data indicate that publicity and size are significant in the effectiveness of intervention.

AB - I propose a new methodology to assess the effect of foreign exchange (FX) intervention, based on the probability of an FX rate reaching. The variable is the probability of an FX rate reaching a particular threshold before reaching another. Importantly, the probability depends on not only the level, but also the trend and volatility of a current FX rate. When an intervention changes the probability in a desired direction, the intervention is effective. The notable feature of the probability is that it considers both the level and volatility of an FX rate comprehensively, while previous studies have examined these effects of FX intervention separately. Empirical results based on regression and nearest-neighbor analyses applied to Japanese data indicate that publicity and size are significant in the effectiveness of intervention.

KW - Foreign exchange intervention

KW - Nearest-neighbors matching analysis

KW - Probability reaching a threshold

UR - http://www.scopus.com/inward/record.url?scp=85018336974&partnerID=8YFLogxK

UR - http://www.scopus.com/inward/citedby.url?scp=85018336974&partnerID=8YFLogxK

U2 - 10.1016/j.jimonfin.2017.04.005

DO - 10.1016/j.jimonfin.2017.04.005

M3 - Article

VL - 75

SP - 32

EP - 46

JO - Journal of International Money and Finance

JF - Journal of International Money and Finance

SN - 0261-5606

ER -