NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

NBER Working Papers by Tomoyoshi Yabu

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Working Papers

May 2004What Prompts Japan to Intervene in the Forex Market? A New Approach to a Reaction Function
with Takatoshi Ito: w10456
This paper analyzes and estimates the reaction function of the Japanese monetary authorities in deciding when to intervene in the foreign exchange (forex) markets, using daily Japanese intervention data from April 1, 1991 to December 31, 2002. This paper is the first in estimating the reaction function of the monetary authorities in the forex market intervention with following new methods. First, a theoretical friction model is presented to describe the intervention as cost-minimizing behavior. Second, the ordered probit analysis, which is consistent with the theoretical model, was carried out to predict authorities' reaction function. The regime change from frequent, small-size intervention before June 1995 and infrequent, large-size intervention after June 1995 is established and estima...

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