【為替介入のメカニズム❤️‍🔥】『Official Intervention in the Foreign Exchange Market: Is it Effective, and, if so, How Does it Work?』論文要約 No.2 2023/10/20

Official Intervention in the Foreign Exchange Market: Is it Effective, and, if so, How Does it Work?*

In this Paper we assess the progress made by the profession in understanding whether and how exchange rate intervention works.

To this end, we review the theory and evidence on official intervention, concentrating primarily on work published within the last decade or so.

Our reading of the recent literature leads us to conclude that, in contrast with the profession’s consensus view of the 1980s, official intervention can be effective, especially through its role as a signal of policy intentions, and especially when it is publicly announced and concerted.

We also note, however, an apparent empirical puzzle concerning the secrecy of much intervention and suggest an additional way in which intervention may be effective but which has so far received little attention in the literature, namely through its role in remedying a coordination failure in the foreign exchange market.

Official exchange rate intervention in the foreign exchange market occurs when the authorities buy or sell foreign exchange, normally against their own currency and in order to affect the exchange rate.
Whether or not official exchange rate intervention is effective in influencing exchange rates, and the means by which it does so, are issues of crucial policy importance, and they have been the subject of a vast academic and policy-related literature.

Given the policy importance of official intervention, it is perhaps not surprising that this literature has been the venue for a substantial and ongoing economic controversy.

Insofar as a consensus is discernible among economists and policy makers concerning the effectiveness and desirability of exchange rate intervention, it appears to have shifted several times over the past quarter of a century.

This Paper summarizes the present authors’ reading of recent research on official exchange rate intervention – what we have learned, what puzzles remain and where further research progress is most likely to be made.

While the survey will be of use to specialists in international finance and macroeconomics, given the policy importance of the issue in hand we also believe that our assessment of the central question motivating our analysis will be of interest to a wider audience of economists and policy makers: is official exchange rate intervention effective and, if so, how does it work?

The evidence on the effectiveness of official intervention is still mixed on balance, although the more recent literature does suggest a significant effect of official intervention on both the level and the change of exchange rates.

Nevertheless, it is perhaps fair to say that the studies of the 1990s, which are largely supportive of the effectiveness of intervention, should perhaps be given more weight than the studies of the 1980s, which largely rejected the effectiveness of intervention.

This is because of the removal of the two major handicaps characterizing the empirical studies of the 1980s, namely the lack of data on intervention and the lack of survey data on exchange rate expectations.

Thus, the evidence provided since the early 1990s by studies using this high quality data seems to us to be sufficiently strong and econometrically sound to allow us to conclude cautiously that official intervention can be effective, especially if the intervention is publicly announced and concerted and provided that it is consistent with the underlying stance of monetary and fiscal policy.

Nevertheless, further empirical work in this area is clearly warranted, especially given the increasing availability of high quality daily data on intervention.

Of the two traditional channels of influence, it is tempting to conjecture that the portfolio balance channel will diminish in importance over time – at least among the major industrialized countries – as international capital markets become increasingly integrated and the degree of substitutability between financial assets denominated in the major currencies increases.

This suggests that, if intervention in the major currencies is effective at all through either of the traditional channels of influence, it will in future be effective primarily through the signalling channel.

On the other hand, if the signalling channel is taken seriously, then an important ‘secrecy puzzle’ emerges: many actual intervention operations in the foreign exchange market are secret.

Given that the signalling channel is expected to work through altering the expectations of other market agents through policy announcements by monetary authorities, this is something of a puzzle which has not yet been adequately resolved in the literature.

Further work on this issue is clearly required.

Finally, we mention a third possible channel of influence for intervention that has, to date, received very little attention in the literature.

This is through the role of intervention in remedying a coordination failure in the foreign exchange market.

One way to think about this is as follows.
First, the foreign exchange market may be subject to irrational speculative bubbles brought about by important noneconomic factors such as chartist or technical analysis which are known to have a significant effect on the market and which may impart swift movements of the exchange rate away from the level consistent with the underlying economic fundamentals (Frankel and Froot, 1990; Taylor and Allen, 1992).

Once the exchange rate has moved a long way away from the fundamental equilibrium, it may be very hard for individual market agents to act to bring about a reversion of the exchange rate, even though they may strongly believe it to be misaligned, because of a coordination failure.

If all of the ‘smart money’ traders were to act simultaneously so as to sell the currency which is overvalued according to the economic fundamentals, then the bubble would be pricked.

In practice, once the exchange rate gets stuck into a trend – perhaps because of the widespread use of trend-following trading rules (Taylor and Allen, 1992) – it takes a great deal of courage for an individual trader to attempt to buck the market.

Publicly announced intervention operations can here be seen as fulfilling a coordinating role in that they may organize the ‘smart money’ to enter the market at the same time.
This route for the effectiveness of intervention might be termed the ‘coordination channel’.

The mid-1980s dollar overvaluation provides a clear case study of the coordination channel: contemporary commentaries reveal a clear consensus in the dollar overvaluation yet it apparently took the publicly announced Plaza Agreement of the G5 countries to successfully puncture the bubble.

The coordination channel is implicit in Dominguez and Frankel’s (1993a) discussion of intervention, and belief in its importance appears to form an important part of policy-makers’ views on intervention (e.g. Wadhwani, 2000; Cecchetti, Genberg, Lipsky and Wadhwani, 2000).

Nevertheless, it has received scant attention in the academic literature to date. In our view, further theoretical and empirical work on the coordination channel is likely to be a very important avenue for future research in this area.