Central Bank Foreign Exchange Market Intervention And Option Contract Specification
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Central Bank Foreign Exchange Market Intervention And Option Contract Specification
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Author : Mr.Ousmene Mandeng
language : en
Publisher: International Monetary Fund
Release Date : 2003-06-01
Central Bank Foreign Exchange Market Intervention And Option Contract Specification written by Mr.Ousmene Mandeng and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 2003-06-01 with Business & Economics categories.
This paper aims to identify appropriate option contract specifications for effective central bank exchange market intervention. Option contract specifications determine the impact of options on the underlying asset or currency, and hence their actual effect on asset price or currency volatility and are therefore key to determining the effectiveness of option-based intervention. The paper reviews the experience of the systematic option-based foreign exchange market intervention of the Central Bank of Colombia and finds that its contract has only been moderately successful at abating exchange rate volatility, which is attributed here to sub-optimal contract specifications.
Central Bank Participation In Currency Options Markets
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Author : Mr.Peter Breuer
language : en
Publisher: International Monetary Fund
Release Date : 1999-10-01
Central Bank Participation In Currency Options Markets written by Mr.Peter Breuer and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 1999-10-01 with Business & Economics categories.
This paper analyzes whether and how central banks can use currency options to lower exchange rate volatility and maintain (implicit) target zones in foreign exchange markets. It argues that selling rather than buying options will result in market makers dynamically hedging their long option exposure in a stabilizing manner, consistent with the first objective. Selling a “strangle” allows a central bank to increase the credibility of its commitment to a target zone, and could have a lower expected cost than spot market interventions. However, this strategy also exposes the central bank to an unlimited loss potential.
Noise Trading Central Bank Interventions And The Informational Content Of Foreign Currency Options
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Author : Christian Pierdzioch
language : en
Publisher: Springer Science & Business Media
Release Date : 2001-12-06
Noise Trading Central Bank Interventions And The Informational Content Of Foreign Currency Options written by Christian Pierdzioch and has been published by Springer Science & Business Media this book supported file pdf, txt, epub, kindle and other format this book has been release on 2001-12-06 with Business & Economics categories.
A flexible instrument to insure against adverse exchange rate movements are options on foreign currency. Often a relatively simple foreign currency option valuation model is used to address issues related to the pricing and hedging of such options. The results of many empirical studies document that real-world foreign currency option premia deviate from those predicted by the baseline model. In the first part of the book, it is shown that a noise trader model can help to explain the observed mispricing of the baseline foreign currency option pricing model. In the second part of the book, it is studied how policymakers can exploit the pricing errors of the baseline model. In particular, it is examined how option pricing theory can be applied to assess the effectiveness of central bank interventions in the foreign exchange market. To this end, a model is constructed to analyze the effectiveness of the interventions conducted by the Deutsche Bundesbank during the Louvre period.
Foreign Exchange Intervention In Inflation Targeters In Latin America
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Author : Mr.Marcos d Chamon
language : en
Publisher: International Monetary Fund
Release Date : 2019-02-28
Foreign Exchange Intervention In Inflation Targeters In Latin America written by Mr.Marcos d Chamon and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 2019-02-28 with Business & Economics categories.
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.
Official Intervention In The Foreign Exchange Market
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Author : Roberto Pereira Guimarães
language : en
Publisher: International Monetary Fund
Release Date : 2003-07-01
Official Intervention In The Foreign Exchange Market written by Roberto Pereira Guimarães and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 2003-07-01 with Business & Economics categories.
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."
Unveiling The Effects Of Foreign Exchange Intervention
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Author : Gustavo Adler
language : en
Publisher: International Monetary Fund
Release Date : 2015-06-23
Unveiling The Effects Of Foreign Exchange Intervention written by Gustavo Adler and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 2015-06-23 with Business & Economics categories.
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.
Two Targets Two Instruments
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Author : Mr.Jonathan David Ostry
language : en
Publisher: International Monetary Fund
Release Date : 2012-02-29
Two Targets Two Instruments written by Mr.Jonathan David Ostry and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 2012-02-29 with Business & Economics categories.
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.
Contemporary Issues In Macroeconomics
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Author : Joseph E. Stiglitz
language : en
Publisher: Springer
Release Date : 2016-04-29
Contemporary Issues In Macroeconomics written by Joseph E. Stiglitz and has been published by Springer this book supported file pdf, txt, epub, kindle and other format this book has been release on 2016-04-29 with Business & Economics categories.
In this edited collection, Joseph Stiglitz and Martin Guzman present a series of studies on contemporary macroeconomic issues. The book discusses a set of key lessons for macroeconomic theory following the recent global financial crisis and explores unconventional monetary policy in a post-crisis world. This volume is divided into five parts. The introduction includes keynote speeches by the Governors of the Bank of Japan and Central Bank of Jordan. Part one focuses on macroeconomic theory for understanding macroeconomic fluctuations and crises. Part two addresses the issue of the measurement of wealth. Part three discusses macroeconomic policies in times of crises. Finally, part four focuses on central banking and monetary policy.
The Effectiveness Of Foreign Exchange Intervention In Emerging Market Countries
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Author : Piti Disyatat
language : en
Publisher:
Release Date : 2005
The Effectiveness Of Foreign Exchange Intervention In Emerging Market Countries written by Piti Disyatat and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2005 with Banks and banking, Central categories.
We survey the literature on the efficacy of foreign exchange market intervention in emerging market countries, emphasising the differences with the literature on industrial countries. We then use official statistics on central bank intervention by the Czech National Bank in conjunction with options market data, to study the impact of intervention during 2001-02. We find that central bank intervention had some (weakly) statistically significant impact on the spot rate and the risk reversal but that this impact was small. We do not find evidence that intervention had an influence on short-term exchange rate volatility. We also find that, in our sample period, Czech authorities appeared to intervene mainly in response to an acceleration of the speed of koruna appreciation.
Foreign Exchange Intervention Rules For Central Banks A Risk Based Framework
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Author : Romain Lafarguette
language : en
Publisher: International Monetary Fund
Release Date : 2021-02-12
Foreign Exchange Intervention Rules For Central Banks A Risk Based Framework written by Romain Lafarguette and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 2021-02-12 with Business & Economics categories.
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.