Author: Publisher:
ISBN:
Category :
Languages : en
Pages : 30
Book Description
A New Method for Identifying the Effects of Foreign Exchange Interventions
A new method for identifying the effects of foreign exchange interventions
Author: Tsutomu Watanabe Chih-nan Chen (and Tomoyoshi Yabu)Publisher:
ISBN:
Category :
Languages : en
Pages : 29
Book Description
A New Method for Identifying the Effects of Foreign Exchange Intervention
Author: Chih-nan ChenPublisher:
ISBN:
Category : Foreign exchange
Languages : en
Pages : 36
Book Description
"The monetary authorities react even to intraday changes in the exchange rate; however, in most cases, intervention data is available only at a daily frequency. This temporal aggregation makes it difficult to identify the effects of interventions on the exchange rate. We propose a new method based on Markov Chain Monte Carlo simulations to cope with this endogeneity problem: We use "data augmentation" to obtain intraday intervention amounts and then estimate the efficacy of interventions using the augmented data. Applying this method to Japanese data, we find that an intervention of one trillion yen moves the yen/dollar rate by 1.7 percent, which is more than twice as large as the magnitude reported in previous studies applying OLS to daily observations . This shows the quantitative importance of the endogeneity problem due to temporal aggregation."--Authors' abstract.
A New Method for Identifying the Effects of Foreign Exchange Interventions
Author: Chih-nan ChenPublisher:
ISBN:
Category : Foreign exchange
Languages : en
Pages : 29
Book Description
The monetary authorities react even to intraday changes in the exchange rate; however, in most cases, intervention data is available only at a daily frequency. This temporal aggregation makes it difficult to identify the effects of interventions on the exchange rate. We propose a new method based on Markov Chain Monte Carlo simulations to cope with this endogeneity problem : We use "data augmentation" to obtain intraday intervention amounts and then estimate the efficacy of interventions using the augmented data. Applying this method to Japanese data, we find that an intervention of one trillion yen moves the yen/dollar rate by 1.7 percent, which is more than twice as large as the magnitude reported in previous studies applying OLS to daily observations . This shows the quantitative importance of the endogeneity problem due to temporal aggregation.
Unveiling the Effects of Foreign Exchange Intervention
Author: Gustavo AdlerPublisher: International Monetary Fund
ISBN: 1513514865
Category : Business & Economics
Languages : en
Pages : 42
Book Description
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
Author: Gustavo AdlerPublisher: International Monetary Fund
ISBN: 1462301215
Category : Business & Economics
Languages : en
Pages : 30
Book Description
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.
Exchange-Rate Swings and Foreign Currency Intervention
Author: Andrew FilardoPublisher: International Monetary Fund
ISBN:
Category : Business & Economics
Languages : en
Pages : 41
Book Description
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.
Foreign Exchange Intervention Rules for Central Banks: A Risk-based Framework
Author: Romain LafarguettePublisher: International Monetary Fund
ISBN: 1513569406
Category : Business & Economics
Languages : en
Pages : 33
Book Description
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.
The Effectiveness of Central-bank Intervention
Author: Hali J. EdisonPublisher:
ISBN: 9780881653076
Category : Business & Economics
Languages : en
Pages : 76
Book Description
Can Foreign Exchange Intervention Stem Exchange Rate Pressures from Global Capital Flow Shocks?
Author: Mr.Olivier J. BlanchardPublisher: International Monetary Fund
ISBN: 1513585843
Category : Business & Economics
Languages : en
Pages : 30
Book Description
Many emerging market economies have relied on foreign exchange intervention (FXI) in response to gross capital inflows. In this paper, we study whether FXI has been an effective tool to dampen the effects of these inflows on the exchange rate. To deal with endogeneity issues, we look at the response of different countries to plausibly exogenous gross inflows, and explore the cross country variation of FXI and exchange rate responses. Consistent with the portfolio balance channel, we find that larger FXI leads to less exchange rate appreciation in response to gross inflows.