Evaluating Foreign Exchange Market Intervention: Self-Selection, Counterfactuals and Average Treatment Effects

Santa Cruz Department of Economics, Working Paper Series from Department of Economics, UC Santa Cruz

Abstract: Studies of central bank intervention are complicated by the fact that we typically observe intervention only during periods of turbulent exchange markets. Furthermore, entering the market during these particular periods is a conscious “self-selection” choice made by the intervening central bank. We estimate the “counterfactual” exchange rate movements that allow us to determine what would have occurred in the absence of intervention and we introduce the method of propensity score matching to the intervention literature in order to estimate the “average treatment effect” (ATE) of intervention. Specifically, we estimate the ATE for daily Bank of Japan intervention over the January 1999 to 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 the effects of intervention vary dramatically and inversely with the frequency of intervention: Intervention is effective over the 1999 to 2002 period, ineffective during 2003 and counterproductive during the first quarter of 2004.

Keywords: Foreign Exchange Intervention; Bank of Japan; Self-Selection; Matching Methods (search for similar items in EconPapers)
Date: 2006-05-30
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://www.escholarship.org/uc/item/02c028gr.pdf;origin=repeccitec (application/pdf)

Related works:
Journal Article: Evaluating foreign exchange market intervention: Self-selection, counterfactuals and average treatment effects (2010)
Working Paper: Evaluating Foreign Exchange Market Intervention: Self-selection, Counterfactuals and Average Treatment Effects (2008)
Working Paper: Evaluating Foreign Exchange Market Intervention: Self-Selection, Counterfactuals and Average Treatment Effects (2006)
Working Paper: Evaluating Foreign Exchange Market Intervention: Self-Selection, Counterfactuals and Average Treatment Effects (2006)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cdl:ucscec:qt02c028gr

Access Statistics for this paper

More papers in Santa Cruz Department of Economics, Working Paper Series from Department of Economics, UC Santa Cruz Contact information at EDIRC.
Bibliographic data for series maintained by Lisa Schiff ().