Dr. Victor Pontines’s research paper on Self-Selection and Treatment Effects: Revisiting the Effectiveness of Foreign Exchange Intervention has been accepted for publication in the Journal of Macroeconomics published by Elsevier, available here.
Along the lines of the treatment effects literature, Dr. Pontines empirically revisits the issue of the so-called “intervention effect”, i.e., the effectiveness of official foreign exchange intervention on the movement of the exchange rate. To achieve this, the study extended in a continuous treatment setting the inverse probability weights estimator developed by Jorda and Taylor (2015) and Angrist, Jorda and Kuersteiner (forthcoming) to control for self-selection bias. The application of this technique is then illustrated by examining the effectiveness of official daily interventions by Japanese monetary authorities in the JPY/USD market. In accordance with existing evidence, the study finds that periods of intervention characterized by large, infrequent and sporadic interventions are effective in moving the changes in the exchange rate in the desired direction. This study also find evidence that once the exchange rate moves in the desired direction, the effect is not long-lasting, but, slightly longer, contrary to existing evidence.
