||Price discovery, volatility and central bank interventions in the foreign exchange markets
||Department of Banking and Finance
Central bank intervention
3、中央銀行干預的型態會影響干預效果。小量干預不具成效，大量干預可影響匯率走勢並降低市場波動。在大量干預時期，日銀成功透過干預行動降低市場跳動次數，故連帶降低市場因日圓升值帶來的擾動現象。此結果符合Taylor (2004)、Reitz & Taylor (2006)提出之coordination channel：央行干預行動可提振基本面交易者的交易信心，使匯率重回基本面，而市場重歸平靜。
||Three topics in exchange rate economics are discussed in this thesis: the price discovery in foreign exchange markets, volatility and the effects of central bank interventions. A threshold cointegration model proposed by Tsay (1998) is used to analysis the asymmetric adjustment process responding to the disequilibrium between two market places in Taiwan’s foreign exchange trading. A GARCH mixed with jump model proposed by Chan and Maheu (2002) is applied to detect the volatility changes of a new currency – the euro, and to evaluate the effectiveness of foreign exchange market intervention conducting by the Japanese authorities. Major conclusions are as follows.
1.Results from the multivariate threshold model indicate prices in the two markets in Taiwan’s foreign exchange trading are integrated nonlinearly. The roles of price discovery are asymmetric, depending on the size and sign of the price discrepancies between the two markets. In the lower regime of discrepancies, each market employs information from its counterpart and reacts to each other with different adjustment speeds. When the discrepancy is in the upper regime, Cosmos Foreign Exchange’s role of price discovery is characterized by its exogenous behavior within the error-correction process.
2.By using a GARCH mixed with jump model (the GARJI model), the volatilities of euro are found to be larger than that of the pound, which is robust to either of the two data-splitting schemes. However, the stability of the euro has made progress in recent years when the physical euro launched in circulating. The evidence is provided by the decreases in the jump innovations. This finding supports the arguments on the determinants of exchange rate stability claimed by Mundell (1998) and Mussa (2000).
3.The empirical results show ‘large-in-size’ interventions adopted by Bank of Japan in the last decade were effective both in altering the exchange rate level and reducing the volatility of Yen. Jump events that tended to drive yen’s appreciations and volatility increases have been effectively reduced, which are in compliance with the coordination channel that explains the effectiveness in intervention proposed by Taylor (2004) and Reitz and Taylor (2006).
Abstract in Chinese II
Abstract in English III
Contents of figures V
Contents of tables VI
Chapter 1 Introduction 1
1. Overview of the exchange rate economics 1
2. Price discovery in Taiwan’s foreign exchange market 2
3. The volatility of the Euro 4
4. Japanese intervention in the foreign exchange market 6
Chapter 2 Price discovery in Taiwan’s foreign exchange market 9
1. Price discovery and microstructure analysis 9
2. Introduction of Taiwan’s foreign exchange market 10
3. The econometric model 12
4. Data and empirical results 17
5. Impulse Response Functions 24
6. Conclusions 26
Chapter 3 An investigation on the volatility dynamics of the euro 33
1. An open question on the volatility of the euro 33
2. Methodology and model 36
3. Empirical Results 41
4. Conclusions 50
Chapter 4 Effects of Japanese intervention on yen/dollar exchange rate volatility 57
1. Controversies on the foreign exchange market intervention 57
2. Methodology and model 61
3. Data and the Results 65
4. Conclusions 70
Contents of figures
Figure 2-1 Price discrepancies between CFE and TFI 28
Figure 2-2 Responses to TFI shocks 28
Figure 2-3 Responses to CFE shocks 29
Figure 2-4 Equilibrating responses in price 29
Figure 3-1 The exchange rates of Euro and British Pound 53
Figure 4-1 Yen/dollar exchange rate and the interventions from BOJ and Fed 72
Contents of tables
Table 2-1 Unit root tests 30
Table 2-2 Cointegration tests 30
Table 2-3 Results of the nonlinearity test 31
Table 2-4 Selection of delay, threshold, and the number of regimes 31
Table 2-5 Least squares estimates and their ratios for different regimes 32
Table 3-1 The statistical properties of daily exchange rate returns 54
Table 3-2 Test results for structural change 54
Table 3-3 Estimates by the division of virtual / physical period 55
Table 3-4 Estimates by the division of depreciation / appreciation period 56
Table 4-1 Estimation results of the first half 73
Table 4-2 Estimation results of the second half 74
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