Oscar Bernal

Talks, Financial Operations Or Both? Generalizing Central Banks' FX Reaction Functions

This paper generalizes central banks’ FX interventions reaction functions to include oral interventions alongside actual ones. Using Japanese data for the 1991-2004 period, we estimate an ordered probit explaining the occurrence of each type of intervention and evaluating the extent to which oral and actual interventions are substitutes or complements. Our results indicate that monetary authorities tend to adopt progressively stronger measures as the exchange rate behaves in an increasingly unfavorable way. This suggests that words and acts are used as complements only in extreme cases.

Do interactions between political authorities and central banks influence FX interventions? Evidence from Japan

In the United States, Japan and the Euro Zone, FX interventions are institutionally decided by specific political authorities and implemented by central banks on their behalf. Bearing in mind that these specific political authorities and central banks might not necessarily pursue the same exchange rates objectives, the model proposed in this paper takes account explicitly of this institutional organisation to examine its effects on FX intervention activity. The empirical relevance of our theoretical model is assessed by developing a friction model on the Japanese experience between 1991 and 2004 which reveals how the magnitude of Japanese interventions is the outcome of the Japanese Ministry of Finances trade-off between attaining its own exchange rate target and one of the Bank of Japans.