Impulse Response of the Exchange Rate Volatility to a Foreign Exchange Intervention Shock

This work was supported by KAKENHI (20730210).This paper uses Lin's technique (1997) to report on the impulse response function analysis that traces the dynamics of exchange rate volatility from innovations in Japanese foreign exchange intervention. Using a multivariate GARCH model, we employed a volatility impulse response function based on Lin (1997) to detect the impulse response of exchange rate volatility on a one-unit foreign exchange intervention shock. The main findings of t his paper are as follows: (1) a foreign exchange intervention shock leads to a significant increase in exchange rate volatility, and (2) the central bank takes persistent action against the exchange rate volatility shock