Foreign Exchange Intervention and Monetary Policy in Japan, 2003-04

This article examines the rationale behind the massive increase in Japanese foreign exchange market intervention operations in 2003-04, and evaluates its effectiveness both in limiting yen exchange rate appreciation and influencing the direction of monetary policy. The two main questions addressed in this study are: Was the intervention effective in slowing exchange rate appreciation compared to a counterfactual case with no intervention? And, has intervention on such a large scale authorized by the Ministry of Finance been able to directly influence liquidity creation or indirectly influence the stance of Bank of Japan policy?foreign exchange intervention; Japanese monetary policy

ECB Foreign Exchange Intervention and the Euro: Institutional Framework, News and Intervention.

Using a unique intervention "news" data set, this paper investigates the impact of ECB intervention and intervention-related "news" (newswire reports) on the euro exchange rate. A time-series study of "news" generated by ECB officials and market participants regarding intervention and the value of the euro as well as an event study of firm reports of ECB intervention is conducted. Both studies find significant short-run effects on the euro value, while only "negative" statements (official statements denying past intervention or ruling out future intervention) appear to have persistent effects.

Evaluating Foreign Exchange Market Intervention: Self-Selection, Counterfactuals and Average Treatment Effects

Studies of central bank intervention are complicated by the fact that we typically observe intervention only during periods of turbulent exchange markets. Furthermore, entering the market during these particular periods is a conscious “self-selection” choice made by the intervening central bank. We estimate the “counterfactual” exchange rate movements that allow us to determine what would have occurred in the absence of intervention and we introduce the method of propensity score matching to the intervention literature in order to estimate the “average treatment effect” (ATE) of intervention. Specifically, we estimate the ATE for daily Bank of Japan intervention over the January 1999 to March 2004 period. This sample encompasses a remarkable variation in intervention frequencies as well as unprecedented frequent intervention towards the latter part of the period. We find that the effects of intervention vary dramatically and inversely with the frequency of intervention: Intervention is effective over the 1999 to 2002 period, ineffective during 2003 and counterproductive during the first quarter of 2004.foreign exchange intervention; Bank of Japan; self-selection, matching methods

Is Foreign Exchange Market Intervention an Alternative to Monetary Policy? Evidence from Japan.

Japanese official intervention in the foreign exchange market is of by far the largest magnitude in the world, despite little or no evidence that it is effective in moving exchange rates. Up until recently, however, official data on intervention has not been available for Japan. This paper investigates the effectiveness of intervention using recently published official daily data and an exchange rate data, i.e. intense and sporadic bursts of intervention activity juxtaposed against a yen/dollar rate continuously changing, than standard time-series approaches. Focusing on daily Japanese and US official intervention operations, we identify separate intervention "episodes" and analyze the subsequent effect on the exchange rate. Using the non-parametric sign test and matched-sample test, we find strong evidence that sterilized intervention systematically affects the exchange rate in the short-run. This result holds even when intervention is not associated with (simultaneous) interest rate changes and regardless of whether or not intervention is "secret" (in the sense of no official reports or rumors of intervention reported over the newswires). To some extent intervention might be a useful policy instrument during the zero-interest rate policy period in Japan, effectively depreciating the value of the yen exchange rate (the "foolproof" policy proposed by Svensson, 2001), but the effects are likely to be short-term in nature.

Does Foreign Exchange Reserve Decumulation Lead to Currency Appreciation?

Many developing countries have increased their foreign reserve stocks dramatically in recent years, in large part motivated by the desire for precautionary self-insurance. One of the negative consequences of large accumulations for these countries is the risk of valuation losses. In this paper we examine the implications of systematic reserve decumulation by the Czech authorities aimed at mitigating valuation losses on euro-denominated assets. The policy was explicitly not intended to influence the value of the koruna relative to the euro. Initially the timing and size of reserve sales was not predictable, eventually sales occurred on a daily basis (in three equal installments within the day). This project examines whether these reserve sales, both during the regime of discretionary timing as well as when sales occurred every day, had unintended consequences for the domestic currency. Our findings using intraday exchange rate data and time-stamped reserve sales indicate that when decumulation occurred every day these sales led to significant appreciation of the koruna. Overall, our results suggest that the manner in which reserve sales are carried out matters for whether reserve decumulation influences the relative value of the domestic currency.http://deepblue.lib.umich.edu/bitstream/2027.42/77402/1/ipc-94-dominguez-fatum-vacek-foreign-exchange-reserve-decumulation-currency-appreciation.pd

The US stock market leads the Federal funds rate and Treasury bond yields

Using a recently introduced method to quantify the time varying lead-lag dependencies between pairs of economic time series (the thermal optimal path method), we test two fundamental tenets of the theory of fixed income: (i) the stock market variations and the yield changes should be anti-correlated; (ii) the change in central bank rates, as a proxy of the monetary policy of the central bank, should be a predictor of the future stock market direction. Using both monthly and weekly data, we found very similar lead-lag dependence between the S&P500 stock market index and the yields of bonds inside two groups: bond yields of short-term maturities (Federal funds rate (FFR), 3M, 6M, 1Y, 2Y, and 3Y) and bond yields of long-term maturities (5Y, 7Y, 10Y, and 20Y). In all cases, we observe the opposite of (i) and (ii). First, the stock market and yields move in the same direction. Second, the stock market leads the yields, including and especially the FFR. Moreover, we find that the short-term yields in the first group lead the long-term yields in the second group before the financial crisis that started mid-2007 and the inverse relationship holds afterwards. These results suggest that the Federal Reserve is increasingly mindful of the stock market behavior, seen at key to the recovery and health of the economy. Long-term investors seem also to have been more reactive and mindful of the signals provided by the financial stock markets than the Federal Reserve itself after the start of the financial crisis. The lead of the S&P500 stock market index over the bond yields of all maturities is confirmed by the traditional lagged cross-correlation analysis.Comment: 12 pages, 7 figures, 1 tabl

DIAbetic macular oedema aNd diode subthreshold micropulse laser (DIAMONDS) : Ppotocol for a randomised clinical trial

Background In the UK, macular laser is the treatment of choice for people with diabetic macular oedema with central retinal subfield thickness (CST) < 400 μm, as per National Institute for Health and Care Excellence guidelines. It remains unclear whether subthreshold micropulse laser is superior and should replace standard threshold laser for the treatment of eligible patients. Methods DIAMONDS is a pragmatic, multicentre, allocation-concealed, randomised, equivalence, double-masked clinical trial that aims to determine the clinical effectiveness and cost-effectiveness of subthreshold micropulse laser compared with standard threshold laser, for the treatment of diabetic macular oedema with CST < 400 μm. The primary outcome is the mean change in best-corrected visual acuity in the study eye from baseline to month 24 post treatment. Secondary outcomes (at 24 months) include change in binocular best corrected visual acuity; CST; mean deviation of the Humphrey 10–2 visual field; change in percentage of people meeting driving standards; European Quality of Life-5 Dimensions, National Eye Institute Visual Functioning Questionnaire-25 and VisQoL scores; incremental cost per quality-adjusted life year gained; side effects; number of laser treatments and use of additional therapies. The primary statistical analysis will be per protocol rather than intention-to-treat analysis because the latter increases type I error in non-inferiority or equivalence trials. The difference between lasers for change in best-corrected visual acuity (using 95% CI) will be compared to the permitted maximum difference of five Early Treatment Diabetic Retinopathy Study (ETDRS) letters. Linear and logistic regression models will be used to compare outcomes between treatment groups. A Markov-model-based cost-utility analysis will extend beyond the trial period to estimate longer-term cost-effectiveness. Discussion This trial will determine the clinical effectiveness and cost-effectiveness of subthreshold micropulse laser, when compared with standard threshold laser, for the treatment of diabetic macular oedema, the main cause of sight loss in people with diabetes mellitus