Central Bank Interventions in the Yen-Dollar Spot Market

We test the effectiveness of Bank of Japan (BOJ)'s foreign exchange interventions on conditional first and second moments of exchange rate returns and traded volumes, using a bivariate EGARCH model of the Yen/USD market from 5-13-1991 to 6-28-2002. We also estimate a friction model of BOJ's intervention reaction function based on reducing short-term market disorderliness and supplementing domestic monetary policy. We find ineffectiveness of BOJ interventions pre-1995 but effectiveness post-1995, Fed intervention amplified the effectiveness of the BOJ transactions, BOJ's interventions were based on ‘leaning against the wind' motivations, and BOJ interventions were vigorously used in support of domestic monetary policy objectives pos t-1995.Foreign exchange intervention; Bank of Japan; exchange rate volatility; trade volume

The spillover effects of target interest rate news from the U.S. Fed and the European Central Bank on the Asia-Pacific stock markets

This paper provides comprehensive evidence on the spillover effects of the U.S. Fed’s and the European Central Bank (ECB)’s target interest rate news on the market returns and return volatilities of 12 stock markets in the Asia-Pacific over the period 1999–2006. The news spillover effects on the returns are generally consistent with the literature where amajority of stock markets shows significant negative returns in response to unexpected rate rises. While the results of the speed of adjustment for the Fed’s news are mixed across the markets, the ECB news was absorbed slowly, in general. The return volatilities were higher in response to the interest rate news from both sources. In addition, both the Fed and the ECB news elicited tardy or persisting volatility responses. These findings have important implications for all levels of market participants in the Asia-Pacific stock markets.Target interest rate news; Spillover effects; U.S. Fed; ECB

Dynamics of Bond Market Integration between Existing And Accession EU Countries

In this paper, we use a set of complementary techniques to examine the time-varying level of integration of European government bond markets. We consider daily bond returns and prices over the 1998-2003 period. Strong contemporaneous and dynamic linkages are found between individual European Union (EU) markets and the German market. However, there is no such evidence for the three accession markets of the Czech Republic, Hungary and Poland. The UK’s market is also considered. In general, the degree of integration for the accession markets is weak and stable, with little evidence of further deepening despite the increased political integration.Bond Indices, Cointegration, GARCH Models, Integration, Kalman Filter

Central Bank Interventions in the Yen-Dollar Spot Market

We test the effectiveness of Bank of Japan (BOJ)’s foreign exchange interventions on conditional first and second moments of exchange rate returns and traded volumes, using a bivariate EGARCH model of the Yen/USD market from 5-13-1991 to 6-28-2002. We also estimate a friction model of BOJ’s intervention reaction function based on reducing short-term market disorderliness and supplementing domestic monetary policy. We find ineffectiveness of BOJ interventions pre-1995 but effectiveness post-1995, Fed intervention amplified the effectiveness of the BOJ transactions, BOJ’s interventions were based on ‘leaning against the wind’ motivations, and BOJ interventions were vigorously used in support of domestic monetary policy objectives post-1995

Inflation News in Australia: Its Effects on Exchange Rates and Interest Rates

This paper investigates the effects of the Australian quarterly inflation news on $A exchange rates and interest rates for the period June Quarter 1984/85 to December Quarter 1992193. The results indicate that the Australian dollar depreciated and interest rates rose as a result of an announcement of a higher than expected Consumer Price Index inflation before April 1988, and the dollar appreciated and interest rates rose thereafter. This difference in market response to the news is due to the different market perceptions regarding the role of monetary policy by the Reserve Bank of Australia (RBA). Prior to April 1988, an unexpected inflation caused markets to expect further future inflation and caused a rise in the risk premium on domestic assets. Post April 1988, an unexpected inflation was regarded as a signal for an impending tight monetary response by the RBA. The evidence is consistent with the belief that market participants had the Portfolio Balance Model of exchange rate determination in mind when they responded to the inflation news

Inflation News in Australia: Its Effects on Exchange Rates and Interest Rates

This paper investigates the effects of the Australian quarterly inflation news on $A exchange rates and interest rates for the period June Quarter 1984/85 to December Quarter 1992193. The results indicate that the Australian dollar depreciated and interest rates rose as a result of an announcement of a higher than expected Consumer Price Index inflation before April 1988, and the dollar appreciated and interest rates rose thereafter. This difference in market response to the news is due to the different market perceptions regarding the role of monetary policy by the Reserve Bank of Australia (RBA). Prior to April 1988, an unexpected inflation caused markets to expect further future inflation and caused a rise in the risk premium on domestic assets. Post April 1988, an unexpected inflation was regarded as a signal for an impending tight monetary response by the RBA. The evidence is consistent with the belief that market participants had the Portfolio Balance Model of exchange rate determination in mind when they responded to the inflation news

The effects of ratings-contingent regulation on international bank lending behaviour: Evidence from the Basel 2 Accord

We investigate the effects of credit ratings-contingent financial regulation on foreign bank lending behavior. We examine the sensitivity of international bank flows to debtor countries’ sovereign credit rating changes before and after the implementation of the Basel 2 risk-based capital regulatory rules. We study the quarterly bilateral flows from G-10 creditor banking systems to 77 recipient countries over the period Q4:1999 to Q2:2013. We find direct evidence that sovereign credit re-ratings that lead to changes in risk-weights for capital adequacy requirements have become more significant since the implementation of Basel 2 rules for assessing banks’ credit risk under the standardized approach. This evidence is consistent with global banks acting via their international lending decisions to minimize required capital charges associated with the use of ratings-contingent regulation. We find evidence that banking regulation induced foreign lending has also heightened the perceived sovereign risk levels of recipient countries, especially those with investment grade status

Regulators vs. markets: Do differences in their bank risk perceptions affect lending terms?

We quantify the differences between market and regulatory assessments of bank portfolio risk, showing that larger differences significantly reduce corporate lending rates. Specifically, to entice borrowers, banks reduce spreads by approximately 4.1% following a one standard deviation increase in our measure for bank asset-risk differences. This amounts to an interest income loss of USD 1.95 million on a loan of average size and duration. The separate effects of market and regulatory risk are much less potent. Our study reveals a disciplinary-competition effect in favor of corporate borrowers when there is information asymmetry between investors and bank regulators

The spillover effects of target interest rate news from the U.S. Fed and the European Central Bank on the Asia-Pacific stock markets

This paper provides comprehensive evidence on the spillover effects of the U.S. Fed’s and the European Central Bank (ECB)’s target interest rate news on the market returns and return volatilities of 12 stock markets in the Asia-Pacific over the period 1999–2006. The news spillover effects on the returns are generally consistent with the literature where amajority of stock markets shows significant negative returns in response to unexpected rate rises. While the results of the speed of adjustment for the Fed’s news are mixed across the markets, the ECB news was absorbed slowly, in general. The return volatilities were higher in response to the interest rate news from both sources. In addition, both the Fed and the ECB news elicited tardy or persisting volatility responses. These findings have important implications for all levels of market participants in the Asia-Pacific stock markets

The spillover effects of target interest rate news from the U.S. Fed and the European Central Bank on the Asia-Pacific stock markets

This paper provides comprehensive evidence on the spillover effects of the U.S. Fed’s and the European Central Bank (ECB)’s target interest rate news on the market returns and return volatilities of 12 stock markets in the Asia-Pacific over the period 1999–2006. The news spillover effects on the returns are generally consistent with the literature where amajority of stock markets shows significant negative returns in response to unexpected rate rises. While the results of the speed of adjustment for the Fed’s news are mixed across the markets, the ECB news was absorbed slowly, in general. The return volatilities were higher in response to the interest rate news from both sources. In addition, both the Fed and the ECB news elicited tardy or persisting volatility responses. These findings have important implications for all levels of market participants in the Asia-Pacific stock markets