Foreign Exchange Intervention

Author : Felix Hüfner
Publisher : Springer Science & Business Media
Page : 180 pages
File Size : 55,9 Mb
Release : 2012-12-06
Category : Business & Economics
ISBN : 9783790826722

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Foreign Exchange Intervention as a Monetary Policy Instrument by Felix Hüfner Pdf

Foreign exchange intervention is frequently being used by central banks in countries which have a floating exchange rate. Most theoretical monetary policy models, however, do not take this phenomenon into account. This book contributes to close this gap between theory and practice by interpreting foreign exchange intervention as an additional monetary policy instrument for inflation targeting central banks. In-depth empirical analyses of the foreign exchange operations and interest rate policy of five inflation targeting countries (Australia, Canada, New Zealand, Sweden and the United Kingdom) demonstrate how foreign exchange intervention is used in practice.

Author : Gustavo Adler,Rui Mano
Publisher : International Monetary Fund
Page : 37 pages
File Size : 48,7 Mb
Release : 2016-04-12
Category : Business & Economics
ISBN : 9781484332306

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The Cost of Foreign Exchange Intervention by Gustavo Adler,Rui Mano Pdf

The accumulation of large foreign asset positions by many central banks through sustained foreign exchange (FX) intervention has raised questions about its associated fiscal costs. This paper clarifies conceptual issues regarding how to measure these costs both from an ex-post and an ex-ante (relevant for decision making) perspective, and estimates both marginal and total costs for 73 countries over the period 2002-13. We find ex-ante marginal costs for the median emerging market economy (EME) in the inter-quartile range of 2-5.5 percent per year; while ex-ante total costs (of sustaining FX positions) in the range of 0.2-0.7 percent of GDP per year for light interveners and 0.3-1.2 percent of GDP per year for heavy interveners. These estimates indicate that fiscal costs of sustained FX intervention (via expanding central bank balance sheets) are not negligible.

Author : Mr.Jorge Iván Canales Kriljenko,Mr.Cem Karacadag,Roberto Pereira Guimarães,Mr.Shogo Ishii
Publisher : International Monetary Fund
Page : 58 pages
File Size : 40,6 Mb
Release : 2006-03-02
Category : Business & Economics
ISBN : 1589064216

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Official Foreign Exchange Intervention by Mr.Jorge Iván Canales Kriljenko,Mr.Cem Karacadag,Roberto Pereira Guimarães,Mr.Shogo Ishii Pdf

Despite increasing exchange rate flexibility, central banks in emerging markets still intervene in their foreign exchange markets for several reasons. In doing so, they face many operational questions, including on the degree of transparency and the choice of markets and counterparties. This paper identifies elements of best practice in official foreign exchange intervention, presents survey evidence on intervention practices in developing countries, and assesses the effectiveness of intervention in Mexico and Turkey.

Author : Roberto Pereira Guimarães,Mr.Jorge Iván Canales Kriljenko,Mr.Cem Karacadag
Publisher : International Monetary Fund
Page : 45 pages
File Size : 51,8 Mb
Release : 2003-07-01
Category : Business & Economics
ISBN : 9781451857115

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Official Intervention in the Foreign Exchange Market by Roberto Pereira Guimarães,Mr.Jorge Iván Canales Kriljenko,Mr.Cem Karacadag Pdf

This paper offers guidance on the operational aspects of official intervention in the foreign exchange market, particularly in developing countries with flexible exchange rate regimes. A brief survey of the literature and country experience is followed by an analysis of the objectives, timing, amount, degree of transparency, and choice of markets and counterparties in conducting intervention. The analysis highlights the difficulty of detecting exchange rate misalignments and disorderly markets, and argues in favor of parsimony in official intervention. Determining the timing and amount of intervention is a highly subjective excercise, and some degree of discretion is almost necessary, though policy rules may serve as "rules of thumb."

Author : Romain Lafarguette,Mr.Romain M Veyrune
Publisher : International Monetary Fund
Page : 33 pages
File Size : 42,9 Mb
Release : 2021-02-12
Category : Business & Economics
ISBN : 9781513569406

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Foreign Exchange Intervention Rules for Central Banks: A Risk-based Framework by Romain Lafarguette,Mr.Romain M Veyrune Pdf

This paper presents a rule for foreign exchange interventions (FXI), designed to preserve financial stability in floating exchange rate arrangements. The FXI rule addresses a market failure: the absence of hedging solution for tail exchange rate risk in the market (i.e. high volatility). Market impairment or overshoot of exchange rate between two equilibria could generate high volatility and threaten financial stability due to unhedged exposure to exchange rate risk in the economy. The rule uses the concept of Value at Risk (VaR) to define FXI triggers. While it provides to the market a hedge against tail risk, the rule allows the exchange rate to smoothly adjust to new equilibria. In addition, the rule is budget neutral over the medium term, encourages a prudent risk management in the market, and is more resilient to speculative attacks than other rules, such as fixed-volatility rules. The empirical methodology is backtested on Banco Mexico’s FXIs data between 2008 and 2016.

Author : Gustavo Adler,Noemie Lisack,Rui Mano
Publisher : International Monetary Fund
Page : 42 pages
File Size : 47,7 Mb
Release : 2015-06-23
Category : Business & Economics
ISBN : 9781513534602

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Unveiling the Effects of Foreign Exchange Intervention by Gustavo Adler,Noemie Lisack,Rui Mano Pdf

We study the effect of foreign exchange intervention on the exchange rate relying on an instrumental-variables panel approach. We find robust evidence that intervention affects the level of the exchange rate in an economically meaningful way. A purchase of foreign currency of 1 percentage point of GDP causes a depreciation of the nominal and real exchange rates in the ranges of [1.7-2.0] percent and [1.4-1.7] percent respectively. The effects are found to be quite persistent. The paper also explores possible asymmetric effects, and whether effectiveness depends on the depth of domestic financial markets.

Author : Gustavo Adler,Mr.Ruy Lama,Juan Pablo Medina Guzman
Publisher : International Monetary Fund
Page : 40 pages
File Size : 45,7 Mb
Release : 2016-03-17
Category : Business & Economics
ISBN : 9781475520415

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Foreign Exchange Intervention under Policy Uncertainty by Gustavo Adler,Mr.Ruy Lama,Juan Pablo Medina Guzman Pdf

We study the use of foreign exchange (FX) intervention as an additional policy instrument in an environment with learning, where agents infer the central bank policy rules from its policy actions. Under full information, a central bank focused on stabilizing output and inflation can achieve better outcomes by using FX intervention as an additional policy tool. Under policy uncertainty, where agents perceive that monetary policy may also have exchange rate stabilization goals, the use of FX intervention entails a trade-off, reducing output volatility while increasing inflation volatility. While having an additional policy tool is always beneficial, we find that the optimal magnitude of intervention is higher in monetary policy regimes with lower uncertainty. These results indicate that the benefits of using FX intervention as an additional stabilization tool are greater in regimes where monetary policy is credibly focused on output and inflation stabilization.

Author : Geert J. Almekinders
Publisher : Edward Elgar Publishing
Page : 248 pages
File Size : 53,7 Mb
Release : 1995
Category : Business & Economics
ISBN : STANFORD:36105018468616

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Foreign Exchange Intervention by Geert J. Almekinders Pdf

This book explains why central banks continue to carry out foreign exchange interventions despite their poor track record. It uses confidential daily intervention data from the Bundesbank and the Federal Reserve.

Author : Felix Hufner
Publisher : Unknown
Page : 188 pages
File Size : 46,7 Mb
Release : 2014-01-15
Category : Electronic
ISBN : 3790826731

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Foreign Exchange Intervention As a Monetary Policy Instrument by Felix Hufner Pdf

Author : Mr.Jorge Iván Canales Kriljenko
Publisher : International Monetary Fund
Page : 60 pages
File Size : 47,6 Mb
Release : 2003-05-01
Category : Business & Economics
ISBN : 9781451851847

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Foreign Exchange Intervention in Developing and Transition Economies by Mr.Jorge Iván Canales Kriljenko Pdf

Based on evidence obtained from the IMF's 2001 Survey on Foreign Exchange Market Organization, the author argues that, for several reasons, some central banks in developing and transition economies may be able to conduct foreign exchange intervention more effectively than the central banks of developed countries issuing the major international currencies. First, these central banks do not always fully sterilize their foreign exchange interventions. In addition, they issue regulations and conduct their foreign exchange operations in a way that increases the central bank's information advantage and the size of their foreign exchange intervention relative to foreign exchange market turnover. Some of the central banks also use moral suasion to support their foreign exchange interventions.

Author : Kathryn M. Dominguez,Jeffrey A. Frankel
Publisher : Peterson Institute for International Economics
Page : 202 pages
File Size : 43,7 Mb
Release : 1993
Category : Business & Economics
ISBN : STANFORD:36105009051124

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Does Foreign Exchange Intervention Work? by Kathryn M. Dominguez,Jeffrey A. Frankel Pdf

How much impact on exchange rates do central banks have when they buy and sell currencies? According to many analysts, such intervention has no independent impact. This book challenges the conventional wisdom, demonstrating that such intervention can be an effective and extremely important tool for policymakers. Using previously unavailable daily intervention data from the US Federal Reserve and German Bundesbank, the authors show that even "sterilized" intervention -intervention that entails no corresponding changes in monetary policy- has a significant effect. A key element is whether the intervention is known to the public: widespread market awareness of the activity adds substantially to its payoff. Authors Dominguez and Frankel draw implications for intervention policy and its role in international economic policy coordination.

Author : Roberto Pereira Guimarães,Mr.Cem Karacadag
Publisher : International Monetary Fund
Page : 34 pages
File Size : 41,6 Mb
Release : 2004-07-01
Category : Business & Economics
ISBN : 9781451854640

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The Empirics of Foreign Exchange Intervention in Emerging Markets by Roberto Pereira Guimarães,Mr.Cem Karacadag Pdf

This paper analyzes the effects of intervention on the level and volatility of the exchange rate in Mexico and Turkey, two emerging countries that have floating exchange rate regimes. The paper finds mixed evidence on the effectiveness of intervention. In Mexico, foreign exchange sales have a small impact on the exchange rate level and raise short-term volatility, while in Turkey, intervention does not appear to affect the exchange rate level but reduces its shortterm volatility. In both cases, the findings are consistent with officially stated policy objectives, which aim to minimize the effect of intervention on the exchange rate, but cast doubt on claims that intervention is a useful tool for smoothing volatility. Although these findings cannot be generalized to other emerging markets, intervention's apparently limited effectiveness highlights the need for central banks to use their scarce foreign reserves selectively and parsimoniously.

Author : Gustavo Adler,Mr.Camilo Ernesto Tovar Mora
Publisher : International Monetary Fund
Page : 30 pages
File Size : 42,7 Mb
Release : 2011-07-01
Category : Business & Economics
ISBN : 9781462301218

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Foreign Exchange Intervention by Gustavo Adler,Mr.Camilo Ernesto Tovar Mora Pdf

This paper examines foreign exchange intervention practices and their effectiveness using a new qualitative and quantitative database for a panel of 15 economies covering 2004 - 10, with special focus on Latin America. Qualitatively, it examines institutional aspects such as declared motives, instruments employed, the use of rules versus discretion, and the degree of transparency. Quantitatively, it assesses the effectiveness of sterilized interventions in influencing the exchange rate using a two-stage IV-panel data approach to overcome endogeneity bias. Results suggest that interventions slow the pace of appreciation, but the effects decrease rapidly with the degree of capital account openness. At the same time, interventions are more effective in the context of already ?overvalued' exchange rates.

Author : Andrew Filardo,Mr. R. G Gelos,Thomas McGregor
Publisher : International Monetary Fund
Page : 41 pages
File Size : 46,8 Mb
Release : 2022-07-29
Category : Business & Economics
ISBN : 9798400215322

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Exchange-Rate Swings and Foreign Currency Intervention by Andrew Filardo,Mr. R. G Gelos,Thomas McGregor Pdf

This paper develops a new approach for exploring the effectiveness of foreign currency intervention, focusing on real exchange cycles. Using band spectrum regression methods, it examines the role of macroeconomic fundamentals in determining the equilibrium real exchange rate at short-, medium-, and low frequencies. Next, it assesses the effectiveness of FX intervention depending on the degree of cycle-specific misalignments for 26 advanced- and emerging market economies, covering the period 1990–2018, and using different techniques to mitigate endogeneity concerns. Evidence supports the hypothesis that central banks can lean effectively against short-run cyclical misalignments of the real exchange rate. The effects are present in quarterly data—i.e., at policy-relevant horizons. The effectiveness of intervention rises with the size of the misalignment, and with the duration of one-sided interventions. FX sales appear to be somewhat more effective than FX purchases, and intervention is less effective in more liquid FX markets.

Author : Mr.Matthew S Malloy
Publisher : International Monetary Fund
Page : 28 pages
File Size : 40,6 Mb
Release : 2013-03-15
Category : Business & Economics
ISBN : 9781475557312

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Factors Influencing Emerging Market Central Banks’ Decision to Intervene in Foreign Exchange Markets by Mr.Matthew S Malloy Pdf

Using panel data for 15 economies from 2001-12, I identify determinants of central bank foreign exchange intervention in emerging markets (“EMs”) with flexible to moderately managed exchange rates. Similar to other studies, I find that central banks tend to “lean against the wind,” buying/selling more foreign exchange in response to greater short-run and medium-run appreciation/depreciation pressures. The panel structure provides a framework to test whether other macroeconomic variables influence the different rates of reserve accumulation between economies. In testing other variables, I find evidence of both precautionary and external competitiveness motives for reserve accumulation.