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Foreign Exchange Intervention By The Bank Of Japan: Bayesian Analysis Using A Bivariate Stochastic Volatility Model, Michael Smith, Andrew Pitts
Foreign Exchange Intervention By The Bank Of Japan: Bayesian Analysis Using A Bivariate Stochastic Volatility Model, Michael Smith, Andrew Pitts
Michael Stanley Smith
A bivariate stochastic volatility model is employed to measure the effect of intervention by the Bank of Japan (BOJ) on daily returns and volume in the USD/YEN foreign exchange market. Missing observations are accounted for, and a data-based Wishart prior for the precision matrix of the errors to the transition equation that is in line with the likelihood is suggested. Empirical results suggest there is strong conditional heteroskedasticity in the mean-corrected volume measure, as well as contemporaneous correlation in the errors to both the observation and transition equations. A threshold model is used for the BOJ reaction function, which is …