ارزیابی مداخله در بازار ارز

Estimating the effect of official foreign exchange market intervention is complicated by the fact that intervention at any point entails a “self-selection” choice made by the authorities and that no counterfactual is observed. To address these issues, we estimate the “counterfactual” exchange rate movement in the absence of intervention by introducing the method of propensity-score matching to estimate the “average treatment effect” (ATE) of intervention. To derive the propensity scores we estimate central bank intervention reaction functions. We estimate the ATE for daily official intervention in Japan over the January 1999–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 only sporadic and relatively infrequent intervention is effective.

Intervention is not a random occurrence but a process where officials “self select” in deciding when to intervene. Since an exchange rate movement at any given point in time coincides with either intervention or no intervention, we cannot observe both what is the exchange rate movement coinciding with intervention and what would have been the “counterfactual”, i.e. what would have been the exchange rate movement if intervention had not occurred when in fact it did. In other words, the counterfactual is not directly observable and, as such, this constitutes a missing data problem. These inherent issues of self-selection and missing data complicate the assessment of the effects of intervention. Following the modern literature on treatment effects, we address the issue of self-selection and the missing counterfactual by estimating the “average treatment effect” (ATE) of intervention in the JPY/USD exchange rate over the 1999–2004 period using a propensity-score matching methodology. The approach taken here to evaluate the effectiveness of intervention, while addressing the aforementioned methodological issues, is to postulate a counterfactual and, in turn, match pairs of observations (or an average of control observations) of exchange rate movements – each pair consisting of an exchange rate movement coinciding with intervention and one that coincides with no intervention – on similar observable characteristics. Although the JPY appreciated strongly against the USD over our sample period, intervention may still have been effective in reducing the magnitude of this appreciation. This highlights the necessity of estimating a relevant counterfactual. We consider intervention as a “treatment” and, using matched counterfactuals, investigate the exchange rate movements with and without intervention in otherwise identical circumstances (as far as can be determined by observable market characteristics that lead up to the decision by the central bank to intervene). By using similar economic circumstances that lead to intervention (similar probabilities of intervention) for “matching up” observations that differ only in whether intervention occurs or not, we are able to address the missing observations and the sample selection bias issues. Our sample of official daily Japanese intervention in the JPY/USD exchange rate market over the January 1999–March 2004 period constitute a fascinating and unprecedented period in the history of foreign exchange market intervention and fits our methodological framework perfectly.1 First, the magnitude of intervention was extremely large. Japanese foreign exchange market intervention jumped in 2003, shown in Fig. 1, with the official selling of JPY 20.2 trillion (USD 177 billion) in exchange for USD. Massive intervention operations in support of the USD continued in the first quarter of 2004, during which time the authorities sold another JPY 14.8 trillion (USD 139 billion). Although Japan has been the most active amongst the larger industrial economies in its foreign exchange market operations during the past decade and more, the recent magnitude dwarfs the previous experience. Second, there are distinct periods of intervention frequency during this sample period. Fatum and Hutchison (2005) and several others observe that a sharp departure from past Japanese intervention policy began in early 2003 when the frequency of interventions jumped dramatically. Official intervention continued in the first quarter of 2004 and, in fact, this quarter stands out with an intervention frequency of 73% of business days. Moreover, Fatum and Hutchison (2005) demonstrate that intervention operations in Japan during this time were automatically sterilized and had no independent effect on monetary growth (i.e. over and above what would otherwise have been the case in the absence of intervention operations). Consistent with the studies by Ito, 2003 and Ito, 2005 and Kearns and Rigobon (2005), we identify (three) sub-samples of separate intervention regimes according to, in our case, highly noticeable changes in the Japanese intervention frequency. Formal tests of reaction function parameter instability across the sub-samples confirm the existence of three separate intervention regimes.2 Full-size image (21 K) Fig. 1. Official Japanese Intervention 1999–2004. Notes: a) Yearly aggregates of daily intervention in the JPY/USD exchange rate market. The daily intervention data obtained from the Japanese Ministry of Finance data bank. b) There has been no Japanese intervention since March 2004. Figure options The basic methodology consists of two parts. In the first part, models of the decision to intervene (decisions by the Ministry of Finance, carried out by the Bank of Japan as its agent through the Foreign Exchange Fund Special Account) are estimated separately across the full and across the three sub-samples. From the model estimates, the probability of intervention (a propensity score) for each day in the given sample is derived. The sample is then split into a group of days when intervention occurs and a group of days when no intervention occurs. Regardless of whether or not intervention occurs on a given day, there is a uniquely defined intervention probability associated with each day in both groups as well as a realized (day-to-day) change in the JPY/USD exchange rate. In the second part, a matching algorithm – the so-called “nearest neighbor” algorithm where each intervention observation is matched with the no-intervention observation that has the “nearest” propensity score – is implemented and the ATE of intervention on exchange rates is examined using difference-in-means tests. Focusing on all intervention days and the general issue of effectiveness, the results of the ATE-matching analysis show that the effect of official intervention in Japan varies dramatically across the three sub-samples under study: significant effect (in the “right” direction) during the period of infrequent interventions, no significant effect during the period of relatively frequent interventions, and either an insignificant or perverse (“counterproductive”) effect during the period of very frequent interventions. Furthermore, we find a systematic pattern of non-uniform intervention effects across specific types of intervention days, indicating structural parameter instability within different intervention regimes. These findings are consistent with the view that infrequent intervention operations may surprise markets and prove an effective policy strategy, while frequent intervention operations – even very large scale – are incorporated into market expectations with little or even counterproductive effects. While our ATE estimations address the fundamental issue of sample selection, our treatment methodology does not solve the endogeneity problem inherent in all intervention studies at the daily frequency. In particular, endogeneity is not less of a concern in a binary treatment framework such as ours than it is in a traditional intervention study aimed at estimating the quantity response of exchange rates to intervention. Therefore, we also carry out an instrumental variable estimation of the ATE in order to ensure that our results are not severely affected by simultaneity bias. The result of the instrumental variable estimation, discussed in detail in the robustness section, suggests that simultaneity is not severely biasing our results. The rest of the paper is organized as follows. Section 2 describes the official Japanese intervention data. Section 3 further discusses the matching methodology and its application to the study of intervention. This section also describes the reaction function estimations necessary for extracting the propensity scores used in the matching. Section 4 presents the main results. Section 5 considers several robustness tests, including radius matching and a procedure to deal with serial dependence. Section 6 discusses and concludes.

The intervening authority makes a conscious decision to enter the foreign exchange market when intervention occurs. The self-selection of the timing of an official intervention operation, and the fact that we don't observe what would have occurred in its absence, is a methodological challenge in estimating the effect on the exchange rate. Estimating an appropriate “counterfactual” under these circumstances in order to properly evaluate the effects of intervention on exchange rate movements is a central methodological problem. We address the issue of self-selection and the missing counterfactual by estimating the “average treatment effect” (ATE) of intervention on the exchange rate. We use a propensity-score matching methodology to do so. In our analysis of daily official intervention in the JPY/USD exchange rate market over the January 1999–March 2004 period, the exchange rate movement is the “outcome” variable and intervention is the “treatment.” Our propensity-score matching compares pairs of observations of exchange rate movements – each pair consisting of an exchange rate movement coinciding with intervention and one that coincides with no intervention – that are similar in observable characteristics (and associated with similar probabilities of intervention). To derive the propensity scores we estimate a central bank intervention reaction function. The ATE is the average difference in terms of exchange rate movements across these matched pairs (or, for radius matching, an average of several control observations that are matched with the intervention observation). We find significant effects of intervention in the right direction in the January 1999–December 2002 sub-sample. This general finding is consistent with several other studies analyzing Japanese intervention over a similar period.22 By contrast, we find a complete lack of significant effects of official intervention in the 2003 sub-sample. Looking at the first quarter of 2004, and the extended sub-sample that includes the first and second quarters of 2004, the effects of official intervention are once again significant, but this time in the wrong direction. Intervention appears to be counterproductive. All our results are robust to various methodological changes. It is interesting that intervention is effective during the first sub-sample of infrequent interventions (3% of business days), ineffective during the second sub-sample of more frequent interventions (32% of business days) and possibly counterproductive during the third sub-sample where the interventions occur at an extremely high frequency (73% of business days).23 Although not a testable hypothesis, given that the three sub-samples of our analysis essentially constitute three “observations”, it seems plausible that the dramatic increase in the Japanese intervention frequencies constitute an important element towards understanding why intervention in one direction, in one exchange rate, carried out by one central bank over a total time span of little more than 5 years, turns from effective to ineffective and, perhaps, counterproductive. This “frequency explanation” is consistent with our finding that the significant results of the 1999–2002 period stem from single-day intervention operations, and points to effectiveness being conditional on the surprise element of intervention.24 We have some methodological reservations about the ATE-matching results from the 2004 sub-sample when intervention operations were intense and very frequent. Therefore, we interpret the results with caution and conclude as follows: Our results strongly support effectiveness of official Japanese intervention during an extended period of relatively infrequent operations (1999–2002), while no evidence to support effectiveness is found during periods of frequent and large-scale intervention operations (2003–2004).