اطلاعیه ها، عملیات مالی یا هر دو؟ تعمیم توابع واکنش فارکس بانک های مرکزی

This paper generalizes the reaction functions of central banks’ FX interventions to include oral interventions alongside actual ones. Using Japanese data for the 1991–2004 period, we estimate an ordered-probit model explaining the occurrence of each type of intervention and evaluating the extent to which oral and actual interventions are substitutes or complements. In addition, the effectiveness of interventions is examined using an event-study approach. Our results indicate that the Japanese authorities tended to adopt progressively stronger measures as the exchange rate was found to behave in an increasingly unfavorable way. This suggests that words and deeds were only coordinated (i.e. used in a complementary way) in extreme cases. Overall, interventions are found to be moderately successful in correcting unwanted exchange-rate developments, especially volatility.

Although all monetary authorities intervene in the foreign exchange (FX) market in order to influence exchange rates, different types of intervention can be distinguished. Actual interventions involve financial transactions (i.e. currency sales or purchases) whereas oral interventions do not (i.e. they are simply oral announcements). While evidence from the major economies (the United States, the Eurozone and Japan) indicates a clear shift toward fewer actual interventions, oral interventions continue to be frequently used. Understanding why one type of intervention is used rather than another is an important issue. Researchers have mainly concentrated on actual interventions largely focusing on their determinants and effects for various countries and periods (Dominguez and Frankel, 1993, Almekinders and Eijffinger, 1996, Dominguez, 1998, Beine et al., 2002 and Ito and Yabu, 2007 among many others). It is only recently that researchers have become interested in the authorities’ communications policy and particularly in the role played by oral interventions as substitutes for or complements to actual interventions (see Beine et al., 2009 and Fratzscher, 2008a). This paper aims to identify useful factors to facilitate our understanding of why each type of intervention occurs. We propose to analyze the FX intervention topography in the light of the signaling theory (Mussa, 1981), which assumes that actual and oral interventions share the ability to influence market agents’ expectations by conveying central banks’ private information. According to Dominguez (1998), it is the nature of interventions (i.e. their signal “strength”) that determines their effect on the exchange-rate dynamics. We thus need to classify interventions according to the strength of the signal they convey. As secret interventions (i.e. actual interventions not contemporaneously detected by the market) do not carry an explicit or visible signal, they cannot be distinguished from private trades (Evans, 2001). Secret-intervention days can thus hardly be differentiated from non-intervention days. By contrast, interventions that are perceived by market participants naturally convey a strong and explicit signal that must be assessed. In this regard, as the total cost supported by the authorities depends on the type of operation carried out, we assume that the cost associated with the different types of visible intervention is an indicator of the signal strength. In other words, we infer that the authorities’ determination to correct a bad exchange-rate dynamics is given by the cost of their intervention. To understand the occurrence of different types of intervention, we estimate an extended intervention reaction function on traditional determinants (i.e. the deviations of the exchange rate from a particular target, the exchange-rate volatility, and the general environment of the economy). We use an ordered probit specification, which is convenient for modeling ordered variables and obtaining threshold estimates determining the levels of imbalance leading to the use of increasingly strong interventions. These thresholds also determine whether oral interventions play the role of substitute for or complement to actual interventions. Furthermore, given that interventions are used by central banks in an attempt to regulate exchange rates, a natural extension is to determine whether interventions (secret or not) are an effective policy at all. Therefore, in a final step, we propose to explore this question using an event-study approach over different time horizons. The paper is organized as follows: The theoretical discussion of the different types of intervention and the way they have been studied in the literature is presented in Section 2. A discussion of the transmission channels of sterilized interventions and the methods used to classify interventions according to the strength of the signal they convey is contained in Section 3. The econometric model and the data are described in Section 4, while our empirical results are discussed in Section 5. The effects of the different policies on exchange rates are discussed in an extension in Section 6. Section 7 contains our conclusions.

In this paper, we have suggested a new approach to central banks’ reaction functions. The approach takes account not only of central banks’ official transactions on the FX markets but also of their general communication policy. This allows us to consider different types of intervention, according to whether they involve currency transactions (i.e. actual and confirmed interventions) or not (oral interventions). A clear shift has been observed in several important countries (the United States, the Eurozone and more recently Japan) toward fewer actual interventions. Determining the circumstances leading the authorities to use one type of intervention rather than another is therefore of practical importance. Understanding to what extent oral interventions may be used instead of, or in addition to actual interventions, is important for policy purposes. The fact that, at a particular time, the authorities decide to accept an unusually high cost may be seen as a good indicator of their degree of determination. We assume that the strength of the signal conveyed by their visible interventions can be assessed by this criterion. Secret interventions cannot be distinguished from private trades. They are therefore considered to carry a non-explicit signal. On this basis, it is possible to elaborate an econometric ordered-probit model with a categorical variable for the different types of intervention as the dependent variable. The interventions are classified according to the strength of the signal they convey. The model was estimated over the usual determinants of interventions (i.e. exchange-rate level and volatility variables, plus control variables for the economic environment) using Japanese data for the 1991–2004 period. The main econometric results indicate that the authorities tend to adopt a leaning-against-the-wind strategy. They try to counteract large deviations of the exchange rate from its past values and the fundamental equilibrium. Estimates of the volatility variables show that only large fluctuations in the exchange rate, and especially jumps in the rate, tend to prompt the authorities to intervene. The overall level of volatility does not concern them so much; they appear to be aware that, in fact, interventions generally trigger volatility. Results on the real-trade balance variables show that the authorities do not react openly to fluctuations in this value; if it deteriorates, they tend to avoid intervening or they use secret interventions. This may indicate that authorities do not want to reveal to their foreign counterparts their intention of defending their international position by influencing the exchange rates. Our examination of the marginal effects on the different outcomes strongly suggests that the strength of the measures employed by the Japanese authorities increases with the gravity of the circumstances. That is, if the exchange-rate level moves a little in an inappropriate direction, or if the volatility increases moderately, they will first use oral interventions. Actual or confirmed interventions are only used if the magnitude of the fluctuations increases. In other words, it is only in extreme cases that words and deeds are used in a complementary way. Finally, our analysis of the effects of interventions shows that the Japanese policy succeeded in correcting several unwelcome trends in the exchange rate even when they were acting secretly. All types of non-secret intervention were found to have had a virtuous effect on volatility. The findings on the exchange-rate level are more variable, however. In particular, results show that the central bank faces difficulties in orienting the trend of the currency in the desired direction when the level of misalignment is high.