Foreign Exchange Interventions

Question A:

It seems likely that Japanese authorities intervened in the foreign exchange market recently to prop up the yen – see, for example: https://www.ft.com/content/455784ec-0465-46ee-8c73-fc5ce3e31c37. In such circumstances, intervention refers to purchases or sales of domestic or foreign currency without changing the monetary policy stance.

Large-scale intervention by public authorities in currency markets can move exchange rates substantially.

Responses weighted by each expert's confidence

Question B:

The effectiveness of foreign exchange interventions can last beyond one month.

Responses weighted by each expert's confidence

Question A Participant Responses

Participant University Vote Confidence Bio/Vote History
Campbell
John Campbell
Harvard
Agree
4
Bio/Vote History
Cochrane
John Cochrane
Hoover Institution Stanford
Uncertain
7
Bio/Vote History
It depends what kind of intervention. A country can peg its exchange rate, if it commits to unlimited buying and selling, and to tax as necessary to back the peg. Whatever it takes. Tentative quantity limited interventions can invite contrary speculative attack.
Cornelli
Francesca Cornelli
Northwestern Kellogg Did Not Answer Bio/Vote History
Diamond
Douglas Diamond
Chicago Booth
Uncertain
4
Bio/Vote History
Du
Wenxin Du
HBS
Strongly Agree
10
Bio/Vote History
Duffie
Darrell Duffie
Stanford
Strongly Agree
9
Bio/Vote History
FX arbitrageurs have limited short-run capital (e.g. Gabaix-Maggiori). Significant FX purchases by central banks, as with Japan, cause a large demand shock, with some credibility. of more to follow. The currency price can therefore rise substantially, at least in the short term.
-see background information here
Eberly
Janice Eberly
Northwestern Kellogg Did Not Answer Bio/Vote History
Fama
Eugene Fama
Chicago Booth Did Not Answer Bio/Vote History
Gabaix
Xavier Gabaix
Harvard
Agree
8
Bio/Vote History
Modern models and empirical work find FX markets to be medium-run inelastic. See also successful interventions by Israel and Switzerland during the financial crisis (buying ~20-40% worth of GDP of foreign currency).
-see background information here
-see background information here
Goldstein
Itay Goldstein
UPenn Wharton
Agree
6
Bio/Vote History
Graham
John Graham
Duke Fuqua Did Not Answer Bio/Vote History
Harvey
Campbell R. Harvey
Duke Fuqua
Uncertain
5
Bio/Vote History
Hong
Harrison Hong
Columbia Did Not Answer Bio/Vote History
Jiang
Wei Jiang
Emory Goizueta Did Not Answer Bio/Vote History
Kaplan
Steven Kaplan
Chicago Booth
Uncertain
3
Bio/Vote History
Kashyap
Anil Kashyap
Chicago Booth
Agree
5
Bio/Vote History
can is important, does not necessarily always happen
Koijen
Ralph Koijen
Chicago Booth
Agree
4
Bio/Vote History
Kuhnen
Camelia Kuhnen
UNC Kenan-Flagler
Agree
3
Bio/Vote History
Lo
Andrew Lo
MIT Sloan Did Not Answer Bio/Vote History
Lowry
Michelle Lowry
Drexel LeBow
Agree
5
Bio/Vote History
Ludvigson
Sydney Ludvigson
NYU
Uncertain
9
Bio/Vote History
Maggiori
Matteo Maggiori
Stanford GSB
Agree
7
Bio/Vote History
Intervention has an impact via financial frictions on exchange rate markets. The more constrained the risk bearing capacity of the private market, the more intervention (for given size) moves the exchange rate
-see background information here
-see background information here
-see background information here
Matvos
Gregor Matvos
Northwestern Kellogg Did Not Answer Bio/Vote History
Moskowitz
Tobias Moskowitz
Yale School of Management Did Not Answer Bio/Vote History
Nagel
Stefan Nagel
Chicago Booth
Agree
5
Bio/Vote History
Recent empirical evidence suggests effectiveness, under some conditions
-see background information here
Parker
Jonathan Parker
MIT Sloan
Strongly Agree
9
Bio/Vote History
Countries can control the international value of their own currency because they can control the supply and the interest rate earned by foreign (short-term) investors. A country can be unable to support its currency if it has insufficient fiscal capacity.
Parlour
Christine Parlour
Berkeley Haas Did Not Answer Bio/Vote History
Philippon
Thomas Philippon
NYU Stern
Agree
7
Bio/Vote History
Puri
Manju Puri
Duke Fuqua Did Not Answer Bio/Vote History
Roberts
Michael R. Roberts
UPenn Wharton
No Opinion
Bio/Vote History
Sapienza
Paola Sapienza
Northwestern Kellogg
Disagree
6
Bio/Vote History
If there is a movement it would be only temporary.
Seru
Amit Seru
Stanford GSB
Uncertain
1
Bio/Vote History
Stambaugh
Robert Stambaugh
UPenn Wharton
Agree
7
Bio/Vote History
Starks
Laura Starks
UT Austin McCombs Did Not Answer Bio/Vote History
Stein
Jeremy Stein
Harvard
Agree
6
Bio/Vote History
Stroebel
Johannes Stroebel
NYU Stern
Agree
3
Bio/Vote History
Titman
Sheridan Titman
UT Austin McCombs
Agree
4
Bio/Vote History
Van Nieuwerburgh
Stijn Van Nieuwerburgh
Columbia Business School
Uncertain
3
Bio/Vote History
Official FX intervention may move the exchange rate in the short run, but the exchange rate reflects underlying differences in fundamentals that make intervention unlikely to succeed in the longer run. Sterilised intervention is less effective.
-see background information here
Whited
Toni Whited
UMich Ross School
Agree
5
Bio/Vote History

Question B Participant Responses

Participant University Vote Confidence Bio/Vote History
Campbell
John Campbell
Harvard
Uncertain
4
Bio/Vote History
Longer-run effects are always hard to demonstrate with statistical confidence.
Cochrane
John Cochrane
Hoover Institution Stanford
Uncertain
7
Bio/Vote History
Again, "interventions" come in many flavors. A firm peg can last a long time. A tentative one time purchase blaming "fragmentation" or "dysfunction" less so. Asset pricing is all about expectations, monetary policy all about rules and commitments, not one time actions.
Cornelli
Francesca Cornelli
Northwestern Kellogg Did Not Answer Bio/Vote History
Diamond
Douglas Diamond
Chicago Booth
Disagree
3
Bio/Vote History
Du
Wenxin Du
HBS
Agree
8
Bio/Vote History
If the country has abundant amount of FX reserves, effectiveness of FX interventions can last for a while.
Duffie
Darrell Duffie
Stanford
Agree
9
Bio/Vote History
Investors can interpret significant purchases by a deep-pocketed central bank as a signal of an intent to purchase as needed to maintain prices and punish shorters, for a period that could be longer than a month. FX managers are known to have persistent macro-monetary objectives.
Eberly
Janice Eberly
Northwestern Kellogg Did Not Answer Bio/Vote History
Fama
Eugene Fama
Chicago Booth Did Not Answer Bio/Vote History
Gabaix
Xavier Gabaix
Harvard
Agree
8
Bio/Vote History
Goldstein
Itay Goldstein
UPenn Wharton
Uncertain
6
Bio/Vote History
Graham
John Graham
Duke Fuqua Did Not Answer Bio/Vote History
Harvey
Campbell R. Harvey
Duke Fuqua
Uncertain
5
Bio/Vote History
Hong
Harrison Hong
Columbia Did Not Answer Bio/Vote History
Jiang
Wei Jiang
Emory Goizueta Did Not Answer Bio/Vote History
Kaplan
Steven Kaplan
Chicago Booth
Uncertain
3
Bio/Vote History
Kashyap
Anil Kashyap
Chicago Booth
Disagree
5
Bio/Vote History
Over a month horizon, it would be clear that the monetary policy stance has not changed, hard to see how the intervention would have a durable effect.
Koijen
Ralph Koijen
Chicago Booth
Agree
4
Bio/Vote History
Kuhnen
Camelia Kuhnen
UNC Kenan-Flagler
Uncertain
3
Bio/Vote History
Lo
Andrew Lo
MIT Sloan Did Not Answer Bio/Vote History
Lowry
Michelle Lowry
Drexel LeBow
Disagree
4
Bio/Vote History
Ludvigson
Sydney Ludvigson
NYU
Disagree
5
Bio/Vote History
Maggiori
Matteo Maggiori
Stanford GSB
Agree
4
Bio/Vote History
Clean empirical evidence is hard to find. Intervention is endogenous and so far we do not have papers credibly identifying the effects. My judgement comes from combining theory and existing evidence, so uncertainty is high, but on balance more positive than negative on effects.
Matvos
Gregor Matvos
Northwestern Kellogg Did Not Answer Bio/Vote History
Moskowitz
Tobias Moskowitz
Yale School of Management Did Not Answer Bio/Vote History
Nagel
Stefan Nagel
Chicago Booth
Uncertain
5
Bio/Vote History
Parker
Jonathan Parker
MIT Sloan
Agree
8
Bio/Vote History
See the example of a fixed exchange rate, which is a situation where a country uses intervention in the exchange market to maintain an exact value for its currency over many years (until it doesn't any more).
Parlour
Christine Parlour
Berkeley Haas Did Not Answer Bio/Vote History
Philippon
Thomas Philippon
NYU Stern
Uncertain
5
Bio/Vote History
Puri
Manju Puri
Duke Fuqua Did Not Answer Bio/Vote History
Roberts
Michael R. Roberts
UPenn Wharton
No Opinion
Bio/Vote History
Sapienza
Paola Sapienza
Northwestern Kellogg
Uncertain
5
Bio/Vote History
The answer depends on the circumstances but it will be short term
Seru
Amit Seru
Stanford GSB
Uncertain
1
Bio/Vote History
Stambaugh
Robert Stambaugh
UPenn Wharton
Uncertain
3
Bio/Vote History
Starks
Laura Starks
UT Austin McCombs Did Not Answer Bio/Vote History
Stein
Jeremy Stein
Harvard
Agree
6
Bio/Vote History
Stroebel
Johannes Stroebel
NYU Stern
No Opinion
Bio/Vote History
Titman
Sheridan Titman
UT Austin McCombs
Uncertain
4
Bio/Vote History
Van Nieuwerburgh
Stijn Van Nieuwerburgh
Columbia Business School
Disagree
3
Bio/Vote History
Whited
Toni Whited
UMich Ross School
Disagree
5
Bio/Vote History