Essays on central bank interventions in advanced and emerging market economies an application to Japan and Turkey.

摘要

Despite the move to floating exchange rates after the breakdown of the Bretton Woods system in 1973, Foreign Exchange Intervention (FXI) remains a commonly used tool for influencing exchange rates in most developed economies as well as emerging markets. The objective of this study is threefold which can be seen in my separate essays.;The first objective is to survey the literature on FXI. In my first essay I provide sections on the theoretical channels through which FXI might affect exchange rates, and critically analyze empirical literature on the effectiveness and motivation of intervention in both advanced and emerging markets.;The second objective is to perform a comprehensive empirical study on the FXI in Japan as an example of an advanced economy. In my second essay, I test whether model specification, frequency, and size of intervention produce different impacts of the effectiveness of FXI. I find that model specification yields varying impacts of the effectiveness of FXI. In particular, it is misleading to generalize results obtained from the simple GARCH model because the effectiveness of FXI is highly dependent on the employed model. The explicit distinction between the impact of the frequency and size of intervention provides an accurate measure of the effect of each factor on the exchange rate. This is in contrast to current studies of the Japanese FXI that only rely on the different patterns intervention in testing its effectiveness. I conclude that the frequency of intervention is more important in affecting the level of the exchange rate while the size of intervention is more influential in affecting its volatility. In my third essay, I estimate the reaction function of the Japanese FXI accounting for different measures of volatility. I find that deviations from medium term, long term and implicit exchange rate targets as well as the volatility of the exchange rate during periods of yen appreciation are considered the key factors motivating JMA to intervene.;The third objective is to test the effectiveness of FXI in Turkey; an emerging economy adopting Inflation Targeting (IT) regime. In my fourth essay, using a multivariate GARCH model, I find that there is always a room for direct FXI to coexist within an IT regime, and to influence the domestic currency to improve competitiveness in the tradable goods markets as long as current inflation rates are within their target bounds. This is in contrast to the previous argument that limits the role of FXI to reducing the volatility instead of defending a particular exchange rate under an IT regime. Using the same model, I find spillover effects of FXI in the sense that change in the TRY/USD as a result of CBT intervention in the FX market leads to change in the TRY/EUR.