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Foreign Exchange Intervention and Monetary Policy: A Tale of Two Agencies with Conflicting Objectives
Author(s) -
Lambson Val,
Takagi Shinji,
Kozuru Issei
Publication year - 2014
Publication title -
review of international economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.513
H-Index - 58
eISSN - 1467-9396
pISSN - 0965-7576
DOI - 10.1111/roie.12153
Subject(s) - economics , monetary policy , intervention (counseling) , central bank , foreign exchange , independence (probability theory) , economic interventionism , christian ministry , foreign exchange reserves , monetary economics , government (linguistics) , macroeconomics , exchange rate , political science , politics , psychology , linguistics , statistics , philosophy , mathematics , psychiatry , law
In several industrial countries, the government is responsible for foreign exchange intervention while the central bank is given operational independence in conducting domestic monetary policy. We model the interaction between the two agencies when their views differ and generate empirical implications using lattice‐theoretic techniques. Japanese data from 2001–2004 support the model's predictions with respect to central bank behavior. The evidence is less conclusive as to whether the massive intervention of 2001–2004 by the Ministry of Finance caused the B ank of J apan to raise the monetary target.