Patterns Of Foreign Exchange Intervention Under Inflation Targeting

Author : Gustavo Adler,Kyun Suk Chang,Zijiao Wang
Publisher : International Monetary Fund
Page : 29 pages
File Size : 52,5 Mb
Release : 2020-05-29
Category : Business & Economics
ISBN : 9781513536453

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Patterns of Foreign Exchange Intervention under Inflation Targeting by Gustavo Adler,Kyun Suk Chang,Zijiao Wang Pdf

The paper documents the use of foreign exchange intervention (FXI) across countries and monetary regimes, with special attention to its use under inflation targeting (IT). We find significant differences between advanced and emerging market economies, with the former group conducting FXI limitedly and broadly symmetrically, while the use of this policy instrument in emerging market countries is pervasive and mostly asymmetric (biased towards purchasing foreign currency, even after taking into account precautionary motives). Within emerging markets, the use of FXI is common both under IT and non-IT regimes. We find no evidence of FXI being used in response to inflation developments, while there is strong evidence that FXI responds to exchange rates, indicating that IT central banks in EMDEs have dual inflation/exchange rate objectives. We also find a higher propensity to overshoot inflation targets in emerging market economies where FXI is more pervasive.

Author : Felix Hüfner
Publisher : Springer Science & Business Media
Page : 180 pages
File Size : 49,6 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 : Mr.Marcos d Chamon,Mr.David J Hofman,Mr.Nicolas E Magud,Alejandro M. Werner
Publisher : International Monetary Fund
Page : 320 pages
File Size : 52,9 Mb
Release : 2019-03-01
Category : Business & Economics
ISBN : 9781484393024

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Foreign Exchange Intervention in Inflation Targeters in Latin America by Mr.Marcos d Chamon,Mr.David J Hofman,Mr.Nicolas E Magud,Alejandro M. Werner Pdf

Foreign exchange intervention is widely used as a policy tool, particularly in emerging markets, but many facets of this tool remain limited, especially in the context of flexible exchange rate regimes. The Latin American experience can be informative because some of its largest countries adopted floating exchange rate regimes and inflation targeting while continuing to intervene in foreign exchange markets. This edited volume reviews detailed accounts from several Latin American countries’ central banks, and it provides insight into how and with what aim many interventions were decided and implemented. This book documents the effectiveness of intervention and pays special attention to the role of foreign exchange intervention policy within inflation-targeting monetary frameworks. The main lesson from Latin America’s foreign exchange interventions, in the context of inflation targeting, is that the region has had a considerable degree of success. Transparency and a clear communication policy have been key. For economies that are not highly dollarized, rules-based intervention helped contain financial instability and build international reserves while preserving inflation targets. The Latin American experience can help other countries in the design and implementation of their policies.

Author : Ilker Domac
Publisher : Unknown
Page : 33 pages
File Size : 50,8 Mb
Release : 2016
Category : Electronic
ISBN : OCLC:1290705982

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Is There Room for Foreign Exchange Interventions Under an Inflation Targeting Framework? Evidence from Mexico and Turkey by Ilker Domac Pdf

The salient characteristics of emerging market economies coupled with the increasing adoption of inflation targeting in these countries has stimulated much debate about the role of the exchange rate in inflation targeting regimes. Domac and Mendoza aim at shedding more light on this issue by investigating whether central bank foreign exchange interventions have had any impact on the volatility of the exchange rate in Mexico and Turkey since the adoption of the floating regime. To this end, their study, using daily data on foreign exchange intervention, employs an Exponential GARCH framework. Empirical results suggest that both the amount and frequency of foreign exchange interventions have decreased the volatility of the exchange rates in these countries. The authors' findings corroborate the notion that if foreign exchange interventions are carried out with finesse and sensibly - that is, not to defend a particular exchange rate - they could play a useful role in containing the adverse effects of temporary exchange rate shocks on inflation and financial stability.This paper - a product of the Poverty Reduction and Economic Management Sector Unit, Europe and Central Asia Region - is part of a larger effort in the region to enhance the knowledge on the effectiveness of central bank foreign exchange interventions.

Author : Ilker Domaç,Alfonzo Mendoza
Publisher : World Bank Publications
Page : 33 pages
File Size : 55,9 Mb
Release : 2004
Category : Foreign exchange rates
ISBN : 8210379456XXX

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Is There Room for Foreign Exchange Interventions Under an Inflation Targeting Framework? by Ilker Domaç,Alfonzo Mendoza Pdf

Author : Ilker Doma??,Alfonso Mendoza
Publisher : Unknown
Page : 128 pages
File Size : 54,6 Mb
Release : 2013
Category : Electronic
ISBN : OCLC:931678497

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Is There Room for Foreign Exchange Interventions Under an Inflation Targeting Framework? Evidence from Mexico and Turkey by Ilker Doma??,Alfonso Mendoza Pdf

The salient characteristics of emerging market economies coupled with the increasing adoption of inflation targeting in these countries has stimulated much debate about the role of the exchange rate in inflation targeting regimes. The authors aim at shedding more light on this issue by investigating whether central bank foreign exchange interventions have had any impact on the volatility of the exchange rate in Mexico and Turkey since the adoption of the floating regime. To this end, their study, using daily data on foreign exchange intervention, employs an Exponential GARCH framework. Empirical results suggest that both the amount and frequency of foreign exchange interventions have decreased the volatility of the exchange rates in these countries. The authors' findings corroborate the notion that if foreign exchange interventions are carried out with finesse and sensibly-that is, not to defend a particular exchange rate-they could play a useful role in containing the adverse effects of temporary exchange rate shocks on inflation and financial stability.

Author : Mr.David J Hofman,Mr.Marcos d Chamon,Mr.Pragyan Deb,Mr.Thomas Harjes,Umang Rawat,Itaru Yamamoto
Publisher : International Monetary Fund
Page : 22 pages
File Size : 46,5 Mb
Release : 2020-01-17
Category : Business & Economics
ISBN : 9781513526027

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Intervention Under Inflation Targeting--When Could It Make Sense? by Mr.David J Hofman,Mr.Marcos d Chamon,Mr.Pragyan Deb,Mr.Thomas Harjes,Umang Rawat,Itaru Yamamoto Pdf

We investigate the motives inflation-targeting central banks in emerging markets may have for intervening in foreign exchange markets and evaluate the case for such interventions based on the existing literature. Our findings suggest that the rationale for interventions depends on initial conditions and country-specific circumstances. The case is strongest in the presence of large currency mismatches or underdeveloped markets. While interventions can have benefits in the short-term, sustained over time they could entrench unfavorable initial conditions, though more work is needed to establish this empirically. A first effort to measure the cost of interventions to the credibility of policy frameworks suggests that the negative impact may be smaller than often assumed—at least for the set of more sophisticated inflation-targeting emerging-market central banks considered here.

Author : Anna Nordstrom,Mr.Scott Roger,Mr.Mark R. Stone,Seiichi Shimizu,Turgut Kisinbay,Jorge Restrepo
Publisher : International Monetary Fund
Page : 106 pages
File Size : 51,6 Mb
Release : 2009-11-24
Category : Business & Economics
ISBN : 9781589067967

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The Role of the Exchange Rate in Inflation-Targeting Emerging Economies by Anna Nordstrom,Mr.Scott Roger,Mr.Mark R. Stone,Seiichi Shimizu,Turgut Kisinbay,Jorge Restrepo Pdf

This paper explores the role of exchange rates in emerging economies with inflation-targeting regimes, an issue that has become especially germane during the current episode of financial turmoil and volatile capital flows. Under inflation targeting, the interest rate is the main monetary policy tool for influencing activity and inflation, and there is little agreement about the appropriate role of the exchange rate.The exchange rate is a more important monetary policy tool for emerging economies that have adopted inflation targeting than it is for inflation-targeting advanced economies. Inflation-targeting emerging economies generally have less flexible exchange rate arrangements and intervene more frequently in the foreign exchange market than their advanced economy counterparts. The enhanced role of the exchange rate reflects these economies' greater vulnerability to exchange rate shocks and their less developed financial markets. However, their sharper focus on the exchange rate may cause some confusion about the commitment of their central banks to achieve the inflation target and may also complicate policy implementation. Global inflation pressures, greater exchange rate volatility, and the financial stresses from the global financial turmoil that began in mid-2007 are heightening these tensions.

Author : Gustavo Adler,Mr.Ruy Lama,Juan Pablo Medina Guzman
Publisher : International Monetary Fund
Page : 40 pages
File Size : 49,6 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 : Mr.Jonathan David Ostry,Mr.Atish R. Ghosh,Mr.Marcos Chamon
Publisher : International Monetary Fund
Page : 25 pages
File Size : 47,9 Mb
Release : 2012-02-29
Category : Business & Economics
ISBN : 9781475503623

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Two Targets, Two Instruments by Mr.Jonathan David Ostry,Mr.Atish R. Ghosh,Mr.Marcos Chamon Pdf

Staff Discussion Notes showcase the latest policy-related analysis and research being developed by individual IMF staff and are published to elicit comment and to further debate. These papers are generally brief and written in nontechnical language, and so are aimed at a broad audience interested in economic policy issues. This Web-only series replaced Staff Position Notes in January 2011.

Author : Mr.Mark R. Stone
Publisher : International Monetary Fund
Page : 31 pages
File Size : 45,7 Mb
Release : 2003-01-01
Category : Business & Economics
ISBN : 9781451842920

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Inflation Targeting Lite by Mr.Mark R. Stone Pdf

Inflation targeting lite (ITL) countries float their exchange rate and announce an inflation target, but are not able to maintain the inflation target as the foremost policy objective. This paper identifies 19 emerging market countries as practitioners of ITL. They seem to focus mainly on bringing inflation into the single digits and maintaining financial stability. ITL can be viewed as a transitional regime aimed at buying time for the implementation of the structural reforms needed for a single credible nominal anchor. The important policy challenges for an ITL central bank include whether or not to precommit to a single anchor.

Author : Mr.Marco Airaudo,Mr.Edward F. Buffie,Luis-Felipe Zanna
Publisher : International Monetary Fund
Page : 65 pages
File Size : 42,9 Mb
Release : 2016-03-08
Category : Business & Economics
ISBN : 9781513567433

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Inflation Targeting and Exchange Rate Management In Less Developed Countries by Mr.Marco Airaudo,Mr.Edward F. Buffie,Luis-Felipe Zanna Pdf

We analyze coordination of monetary and exchange rate policy in a two-sector model of a small open economy featuring imperfect substitution between domestic and foreign financial assets. Our central finding is that management of the exchange rate greatly enhances the efficacy of inflation targeting. In a flexible exchange rate system, inflation targeting incurs a high risk of indeterminacy where macroeconomic fluctuations can be driven by self-fulfilling expectations. Moreover, small inflation shocks may escalate into much larger increases in inflation ex post. Both problems disappear when the central bank leans heavily against the wind in a managed float.

Author : Mr.Mario I. Bléjer,Mr.Alain Ize,Mr.Alfredo Mario Leone,Mr.Sérgio Ribeiro da Costa Werlang
Publisher : International Monetary Fund
Page : 108 pages
File Size : 48,9 Mb
Release : 2000-08-21
Category : Business & Economics
ISBN : 1557758891

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Inflation Targeting in Practice by Mr.Mario I. Bléjer,Mr.Alain Ize,Mr.Alfredo Mario Leone,Mr.Sérgio Ribeiro da Costa Werlang Pdf

A growing number of countries are anchoring their monetary policy through explicit inflation targeting. This policy has already scored remarkable successes in several countries, establishing central bank credibility, and reining in inflation where it had long been stubbornly high. But implementing inflation targets raises many difficult questions. What prerequisites must an economy and its institutions meet for the strategy to work? What choices should central banks make from the menu of possible variations on the basic approach? This book summarizes the discussions in a seminar at which economists and policymakers from ten countries reviewed their experiences with inflation targeting.

Author : International Monetary Fund. Monetary and Capital Markets Department,International Monetary Fund. Research Dept.,International Monetary Fund. Institute for Capacity Development,International Monetary Fund. Strategy, Policy, & Review Department
Publisher : International Monetary Fund
Page : 61 pages
File Size : 47,9 Mb
Release : 2023-12-21
Category : Business & Economics
ISBN : 9798400263842

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Integrated Policy Framework—Principles for the Use of Foreign Exchange Intervention by International Monetary Fund. Monetary and Capital Markets Department,International Monetary Fund. Research Dept.,International Monetary Fund. Institute for Capacity Development,International Monetary Fund. Strategy, Policy, & Review Department Pdf

This note guides policy advice on the use of foreign exchange intervention (FXI) as part of the Integrated Policy Framework (IPF) in Fund surveillance. The note provides general principles for the advice in countries with flexible exchange rates and sets out three use cases for FXI that are tied to specific frictions. It explores the use of FXI as part of an overall policy response, allowing the advice to differ with shocks, frictions, and country-specific circumstances.

Author : Michael Kumhof,Shujing Li,Isabel K. Yan
Publisher : International Monetary Fund
Page : 32 pages
File Size : 46,9 Mb
Release : 2007-04
Category : Business & Economics
ISBN : UCSD:31822034578559

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Balance of Payments Crises Under Inflation Targeting by Michael Kumhof,Shujing Li,Isabel K. Yan Pdf

This paper analyzes a small open economy model under inflation targeting. It shows why such a monetary regime is vulnerable to speculative attacks that take place over a short period rather than instantaneously. The speed at which the regime collapses, and the extent of reserve losses, are increasing in the central bank's explicit or implicit commitment to intervene in the foreign exchange market. Attacks are therefore ranked, from most to least severe, as follows: Exchange rate targeting, CPI inflation targeting, domestic nontradables inflation targeting, and money targeting. Under inflation targeting the size of the attack is increasing in the tradables consumption share.