This paper focuses on eight economies: India, Indonesia, Malaysia, Philippines, Singapore, South Korea, Taiwan, and Thailand. They are emerging markets in Asia. Our sample period covers January 2005 to April 2011. Daily exchange rate data are obtained from Bloomberg. The data are the composite rates by all banks offering traded prices to Bloomberg. We retrieved Taiwan’s exchange rates (TWD) data using the opening and closing rates from Taipei Forex, Inc. Bloomberg also has the opening and closing exchange rates during the Hong Kong’s trading hours of 8:00 a.m. and 4:59 p.m., respectively for Indonesia, Malaysia, Philippines, Singapore, South Korea, and Thailand.
In addition, we obtain India’s quotes for Mumbai’s trading hours from 9:00 a.m. to 4:59 p.m. We see that exchange rates follow a similar general pattern for Asian countries in that they generally appreciated relative to the US dollar, at times rapidly, until March 2008, depreciated very sharply until March 2009, and then appreciated gradually after the implementation of quantitative easing by the U.S. Federal Reserve.
We use Reuters’ news reports to extract information about central bank interventions in the foreign exchange market. These news reports consist of the date and time of a reported intervention. The use of news reports as proxies for central bank interventions is featured in past studies (Peiers, 1997, Chang and Taylor, 1998, Fatum and Hutchison, 2002, Dominguez, 2003, Sapp, 2002, Fischer, 2006).
The accuracy of intervention reports has been analyzed by Fischer (2006) for the Swiss National Bank. When comparing actual intervention data with intervention reports from Reuters, he shows that intervention reports in the intraday interval often lag behind actual interventions, but interventions reported by Reuters at the daily interval are fairly
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accurate with no false reporting. The high percentage of accuracy of actual intervention reports from Reuters indicates that information conveyed in these reports is accurate and provides a high degree of data integrity assurance. This paper uses Reuters’ news reports to proxy for intervention activities in the eight Asian economies.
Our classifications of news reports are similar to that of Fatum and Hutchison (2002). Intervention news reports are classified as firm, suspected, supported, and neutral.
A report is classified as a firm report when the news clearly state that the central bank intervened in the currency markets. This is synonymous with category D of Fatum and Hutchison (2002). A report is classified as a suspected report when the news cast doubt on official intervention in the foreign exchange market. This is synonymous with category A of Fatum and Hutchison (2002). A report is classified as a supported report when central bank or government officials provide statements that show support for intervention in the currency market (including suggestions that intervention is a possibility). This is equivalent to category B of Fatum and Hutchison (2002). A report is classified as a neutral report when central bank or government officials express neutral opinion on intervention activities. Firm reports are more certain on central banks’
intervention activities and suspected reports are possible interventions with doubt. These two categories of reports specifically distinguish intervention in the buying and selling of US dollars.
The supported and neutral categories are news reports of central bank or government officials’ verbal interventions on the foreign exchange market, and they do not highlight the difference in the intervention. Table A1 in the Appendix provides examples of the news reports and their categories.
Table 1 presents the distribution of intervention reports of the eight Asian countries
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categorized into firm, suspected, supported, and neutral reports. Panel (a) shows the number of intervention reports in two sub-sample periods. The first sample period (2005-2007) has a fewer reports for firm and suspected news than that in the second sample period (2008-2011). The second sample period coincides with the subprime crisis, which led to the introduction of the quantitative easing policy adopted by the US Federal Reserve. It is not surprising, therefore, that the majority of intervention reports happened in this period. Panel (b) shows the number of days for which news on central bank interventions are reported on the Asian countries. There are more intervention reports for Taiwan, South Korea, and India. We see that central banks in these countries intervened heavily in the foreign exchange market during the second sample period and the number of days with intervention reports mainly concentrate in the firm report category, except for those of India and Singapore, which have more suspected intervention reports.
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Table 1 Central Bank Intervention News Distribution
Panel (a) Number of news counts
Country
Firm Suspected Supported Neutral
2005- 2008- Total 2005- 2008- Total 2005- 2008- Total 2005- 2008- Total
Panel (b) Number of days with news reports
Country Firm Suspected Supported Neutral
India 79 99 7 3 intervened in currency markets. A report is classified as a suspected report when the news cast doubt on official intervention in the foreign exchange market. A report is classified as a supported report when central bank or government officials provide statements that show support for intervention in the currency market (including suggestions that intervention is a possibility). A report is classified as a neutral report when central bank or government officials express a neutral opinion on intervention activities.
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Figures 1(a) to (h) plot the value of the US dollar against the Asian currencies of all eight countries. The plot is superimposed against the intervention dummy, which indicates purchases (+1) and sales (-1) of the US dollar. The figures show that the central banks of India, Indonesia, Philippines, South Korea, Taiwan, and Thailand intervened constantly to keep their exchange rates from falling against the US dollar from 2007 to 2008 and after 2009. The various countries also responded differently to the rise in the value of the US dollar from 2008 to 2009. Some countries allowed their local currency to appreciate more against the US dollar, while others intervened massively to hold their exchange rate to fluctuate within a limited range. This is consistent with the notions that some countries monitor the region’s exchange rates and attempt to keep the relative value of their currencies in line with the value of selected regional currencies.
It is clear from these figures that most central banks in Asian countries tend to purchase (sell) US dollars when the US dollar depreciates (appreciates), which indicates that these countries are attempting to counter large changes in the value of their domestic currencies in the sample period. Another noteworthy observation is that in several of these Asian countries there are many episodes of intervention occurring on the same day, implying persistence by the authorities in coordinating with market participants to influence the level of the exchange rate.
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Figure 1 Plots of Asian Currencies viz-a-viz US Dollar and Intervention Dummy
Figure 1(a): India
Intervene is a dummy variable equal to 1 when the central bank of India buys US dollars from the exchange market on certain dates, equal to -1 when the bank sells US dollars, or equal to 0 otherwise. SPM is the daily closing price of USD against the Indian Rupee.
Figure 1(b): Indonesia
Intervene is a dummy variable equal to 1 when the central bank of Indonesia buys US dollars from the exchange market on certain dates, equal to -1 when the bank sells US dollars, or equal to 0 otherwise. SPM is the daily closing price of USD against the Indonesian Rupiah.
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2005 2006 2007 2008 2009 2010 2011
Intervene(RHS) SPM(LHS)
2005 2006 2007 2008 2009 2010 2011
Intervene(RHS) SPM(LHS)
Figure 1(c): Malaysia
Intervene is a dummy variable equal to 1 when the central bank of Malaysia buys US dollars from the exchange market on certain dates, equal to -1 when the bank sells US dollars, or equal to 0 otherwise. SPM is the daily closing price of USD against the Malaysian Ringgit.
Figure 1(d): Philippines
Intervene is a dummy variable equal to 1 when the central bank of Philippines buys US dollars from the exchange market on certain dates, equal to -1 when the bank sells US dollars, or equal to 0 otherwise. SPM is the daily closing price of USD against the Philippine Peso.
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2005 2006 2007 2008 2009 2010 2011
Intervene(RHS) SPM(LHS)
2005 2006 2007 2008 2009 2010 2011
Intervene(RHS) SPM(LHS)
Figure 1(e): Singapore
Intervene is a dummy variable equal to 1 when the central bank of Singapore buys US dollars from the exchange market on certain dates, equal to -1 when the bank sells US dollars, or equal to 0 otherwise. SPM is the daily closing price of USD against Singapore dollars.
Figure 1(f): South Korea
Intervene is a dummy variable equal to 1 when the central bank of South Korea buys US dollars from the exchange market on certain dates, equal to -1 when the bank sells US dollars, or equal to 0 otherwise. SPM is the daily closing price of USD against the Korean Won.
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2005 2006 2007 2008 2009 2010 2011
Intervene(RHS) SPM(LHS)
2005 2006 2007 2008 2009 2010 2011
Intervene(RHS) SPM(LHS)
Figure 1(g): Taiwan
Intervene is a dummy variable equal to 1 when the central bank of Taiwan buys US dollars from the exchange market on certain dates, equal to -1 when the bank sells US dollars, or equal to 0 otherwise. SPM is the daily closing price of USD against NTD.
Figure 1(h): Thailand
Intervene is a dummy variable equal to 1 when the central bank of Thailand buys US dollars from the exchange market on certain dates, equal to -1 when the bank sells US dollars, or equal to 0 otherwise. SPM is the daily closing price of USD against the Thai Baht.
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2005 2006 2007 2008 2009 2010 2011
Intervene(RHS) SPM(LHS)
2005 2006 2007 2008 2009 2010 2011
Intervene(RHS) SPM(LHS)