Hitotsubashi Institute for Advanced Study


The Trend Effect of Foreign Exchange Intervention


The 2022 and the 2010-2011 Bank of Japan interventions provide an opportunity for investigating whether unusually large-scale and infrequent interventions are capable of generating trend effects. To this end, we estimate the counterfactual exchange rate and analyze structural changes in the level and the trend of the gap sequence between actual and counterfactual exchange rates. Our results show that the trend of the gap sequence reversed in the desired direction around the intervention dates, indicating that the intervention policy instrument is potentially powerful enough to generate long-term trend effects. This is an important insight not previously found in the intervention literature.


Report No.: HIAS-E-132
Author(s): Rasmus Fatum(a), Yohei Yamamoto(b), Binwei Chen(b)
Affiliation: (a) University of Alberta
(b) Hitotsubashi University
Issued Date: August 2023
Keywords: Foreign Exchange Intervention; Counterfactual Exchange Rate; Currency Factors; Synthetic Control Methods; Structural Changes.
JEL: F31, C38