Background

Rasmus Fatum is Associate Professor at the Department of Marketing, Business Economics and Law at the University of Alberta School of Business. He has written a number of papers on foreign exchange interventions and other issues related to monetary policy in open macro setting.

Dr. Fatum will be giving a seminar on his recent paper that examines Japan's foreign exchange policy in the zero interest rate environment.

The paper takes advantage of the fact that all interventions in the JPY/USD market during the zero-interest rate period are sterilized sales of JPY and, therefore, that none of these interventions can signal a future interest rate decrease.

In order to further assess the transmission channel through which these interventions work, the analysis integrates official daily Japanese intervention data with a comprehensive dataset of rumors that may capture markets' awareness of the interventions. Market awareness is a necessary condition for interventions to disseminate the information of policy direction and work through channels other than the portfolio balance channel.

The paper employs the GARCH time series model for the baseline analysis while controlling for macroeconomic surprises and endogeneity. It also carries out a variety of robustness checks.

The results of the time series analysis show that interventions are effective in depreciating the JPY although market awareness is unimportant. These results are consistent with the idea that Japanese foreign exchange interventions during the zero-interest rate period work only through the portfolio balance channel.

Participants

ADBI Staff and General Public

Language

English