The effect of intervention frequency on the foreign exchange market: The Japanese experience

This paper examines the effects of the frequency of foreign exchange intervention on exchange rate volatility. Japanese intervention is characterized by differences in the frequency of intervention—there are high and low frequency intervention periods. Using the GARCH methodology, this paper models the changes in the yen/dollar exchange rate, with the frequency of intervention from April 1991 to December 2005 as the focal explanatory variable. The empirical results show that high frequency intervention stabilizes the exchange rate by reducing exchange rate volatility and that low frequency intervention is more effective.