The Cost Of Foreign Exchange Intervention
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The Cost Of Foreign Exchange Intervention
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Author : Gustavo Adler
language : en
Publisher: International Monetary Fund
Release Date : 2016-04-12
The Cost 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 2016-04-12 with Business & Economics categories.
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.
Foreign Exchange Intervention Under Policy Uncertainty
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Author : Gustavo Adler
language : en
Publisher: International Monetary Fund
Release Date : 2016-03-17
Foreign Exchange Intervention Under Policy Uncertainty 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 2016-03-17 with Business & Economics categories.
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.
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.
Foreign Exchange Intervention As A Monetary Policy Instrument
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Author : Felix Hüfner
language : en
Publisher: Springer Science & Business Media
Release Date : 2012-12-06
Foreign Exchange Intervention As A Monetary Policy Instrument written by Felix Hüfner 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 2012-12-06 with Business & Economics categories.
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.
The Determinants Of Foreign Exchange Intervention By Central Banks
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Author : Suk-Joong Kim
language : en
Publisher:
Release Date : 1999
The Determinants Of Foreign Exchange Intervention By Central Banks written by Suk-Joong Kim and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 1999 with Banks and banking, Central categories.
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.
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."
Foreign Exchange Intervention And The Dutch Disease
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Author : Julia Faltermeier
language : en
Publisher: International Monetary Fund
Release Date : 2017-03-27
Foreign Exchange Intervention And The Dutch Disease written by Julia Faltermeier 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 2017-03-27 with Business & Economics categories.
We study the optimal foreign exchange (FX) intervention policy in response to a positive terms of trade shock and associated Dutch disease episode in a small open economy model. We find that during a Dutch disease episode tradable production drops below the socially optimal level, resulting in lower welfare under learningby- doing (LBD) externalities. FX reserves accumulation improves welfare by preventing a large appreciation of the real exchange rate and by inducing an efficient reallocation between the tradable and non-tradable sectors. For an empirically plausible parametrization of LBD externalities, the model predicts that in response to a 10 percent increase in commodity prices FX reserves should increase by 1.5 percent of GDP. We also find that the welfare gains from optimally using FX reserves are twice as high as the gains from relying only on monetary policy. These results suggest that FX intervention is a beneficial policy to counteract the loss of competitiveness during a Dutch disease episode.
Macroeconomic Impact Of Foreign Exchange Intervention Some Cross Country Empirical Findings
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Author : Mr. Zhongxia Jin
language : en
Publisher: International Monetary Fund
Release Date : 2021-04-30
Macroeconomic Impact Of Foreign Exchange Intervention Some Cross Country Empirical Findings written by Mr. Zhongxia Jin 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 2021-04-30 with Business & Economics categories.
Based on VAR analyses across 26 countries, we show that, although foreign exchange intervention (FXI) is effective in stabilizing the nominal exchange rate in the short run, its impacts on the real exchange rate are less significant: Limitations on nominal exchange rate flexibility may induce adjustments to the real exchange rate through domestic prices. We find that countries that intervene more heavily in response to external shocks experience greater general and asset price volatility, which is not conducive to countering the impact of external shocks. We show that China’s macroeconomic responses to external shocks are broadly consistent with international experiences among intervening countries. The simple methodological framework adopted in this paper is meant to examine a broad set of macroeconomic variables and bears limitations; our findings serve to motivate more structural analysis on FXI’s macroeconomic impacts going forward.
Foreign Exchange Intervention
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Author : Geert J. Almekinders
language : en
Publisher: Edward Elgar Publishing
Release Date : 1995
Foreign Exchange Intervention written by Geert J. Almekinders and has been published by Edward Elgar Publishing this book supported file pdf, txt, epub, kindle and other format this book has been release on 1995 with Business & Economics categories.
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.