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Author : Hali J. Edison
Publisher :
ISBN 13 : 9780881653076
Total Pages : 76 pages
Book Rating : 4.6/5 (53 download)
Download or read book The Effectiveness of Central-bank Intervention written by Hali J. Edison and published by . This book was released on 1993 with total page 76 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Author : Romain Lafarguette
Publisher : International Monetary Fund
ISBN 13 : 1513569406
Total Pages : 33 pages
Book Rating : 4.5/5 (135 download)
Download or read book Foreign Exchange Intervention Rules for Central Banks: A Risk-based Framework written by Romain Lafarguette and published by International Monetary Fund. This book was released on 2021-02-12 with total page 33 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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 : Dave Arnold Seerattan
Publisher :
ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (847 download)
Download or read book The Effectiveness of Central Bank Interventions in the Foreign Exchange Market written by Dave Arnold Seerattan and published by . This book was released on 2012 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: The global foreign exchange market is the largest financial market with turnover in this market often outstripping the GDP of countries in which they are located. The dynamics in the foreign exchange market, especially price dynamics, have huge implications for financial asset values, financial returns and volatility in the international financial system. It is therefore an important area of study. Exchange rates have often departed significantly from the level implied by fundamentals and exhibit excessive volatility. This reality creates a role for central bank intervention in this market to keep the rate in line with economic fundamentals and the overall policy mix, to stabilize market expectations and to calm disorderly markets. Studies that attempt to measure the effectiveness of intervention in the foreign exchange market in terms of exchange rate trends and volatility have had mixed results. This, in many cases, reflects the unavailability of data and the weaknesses in the empirical frameworks used to measure effectiveness. This thesis utilises the most recent data available and some of the latest methodological advances to measure the effectiveness of central bank intervention in the foreign exchange markets of a variety of countries. It therefore makes a contribution in the area of applied empirical methodologies for the measurement of the dynamics of intervention in the foreign exchange market. It demonstrates that by using high frequency data and more robust and appropriate empirical methodologies central bank intervention in the foreign exchange market can be effective. Moreover, a framework that takes account of the interactions between different central bank policy instruments and price dynamics, the reaction function of the central bank, different states of the market, liquidity in the market and the profitability of the central bank can improve the effectiveness of measuring the impact of central bank policy in the foreign exchange market and provide useful information to policy makers.
Author : Gustavo Adler
Publisher : International Monetary Fund
ISBN 13 : 148433230X
Total Pages : 37 pages
Book Rating : 4.4/5 (843 download)
Download or read book The Cost of Foreign Exchange Intervention written by Gustavo Adler and published by International Monetary Fund. This book was released on 2016-04-12 with total page 37 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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 : Roberto Pereira Guimarães
Publisher : International Monetary Fund
ISBN 13 : 145185711X
Total Pages : 45 pages
Book Rating : 4.4/5 (518 download)
Download or read book Official Intervention in the Foreign Exchange Market written by Roberto Pereira Guimarães and published by International Monetary Fund. This book was released on 2003-07-01 with total page 45 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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 : Christian Pierdzioch
Publisher : Springer Science & Business Media
ISBN 13 : 9783540427452
Total Pages : 232 pages
Book Rating : 4.4/5 (274 download)
Download or read book Noise Trading, Central Bank Interventions, and the Informational Content of Foreign Currency Options written by Christian Pierdzioch and published by Springer Science & Business Media. This book was released on 2001-12-06 with total page 232 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.
Author : Felix Hüfner
Publisher : Springer Science & Business Media
ISBN 13 : 3790826723
Total Pages : 180 pages
Book Rating : 4.7/5 (98 download)
Download or read book Foreign Exchange Intervention as a Monetary Policy Instrument written by Felix Hüfner and published by Springer Science & Business Media. This book was released on 2012-12-06 with total page 180 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.Jorge Iván Canales Kriljenko
Publisher : International Monetary Fund
ISBN 13 : 9781589064218
Total Pages : 58 pages
Book Rating : 4.0/5 (642 download)
Download or read book Official Foreign Exchange Intervention written by Mr.Jorge Iván Canales Kriljenko and published by International Monetary Fund. This book was released on 2006-03-02 with total page 58 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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 : Dave Seerattan
Publisher :
ISBN 13 :
Total Pages : 22 pages
Book Rating : 4.:/5 (974 download)
Download or read book The Effectiveness of Central Bank Intervention in the Foreign Exchange Markets in Selected Flexible Exchange Rate Regime Countries in the Caribbean written by Dave Seerattan and published by . This book was released on 2004 with total page 22 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper analyses the effectiveness of central bank intervention in the foreign exchange markets of floating exchange rate regime countries in the region in terms of the level and volatility of the exchange rate. The paper reviews the literature on foreign exchange market intervention, outlines the structure of the foreign exchange markets in these jurisdictions and the modus operandi of intervention by central banks in these markets and estimates the impact of intervention on target variables. Policy recommendations for best practices on intervention in these foreign exchange markets are then suggested.
Author : Silke Fabian
Publisher : Springer Science & Business Media
ISBN 13 : 3642500293
Total Pages : 175 pages
Book Rating : 4.6/5 (425 download)
Download or read book Exchange Rate Management in Interdependent Economies written by Silke Fabian and published by Springer Science & Business Media. This book was released on 2012-12-06 with total page 175 pages. Available in PDF, EPUB and Kindle. Book excerpt: With the breakdown of the Bretton Woods System and the begin of floating between the major currencies, central banks have been formally freed from their obligations to defend the fixed parities of bilateral exchange rates. Nev ertheless, since then there have been countless occasions on which monetary authorities have officially intervened in the foreign exchange market. More over, numerous studies indicate that exchange rates have been much more variable than originally anticipated - in real and in nominal, as well as in short run and longer run measures (see for example Hesse and Braasch [1989] and Marston [1988]). Through the experience of high real sector costs, the topic of optimal exchange rate management soon reentered policy discussions. The term exchange rate management encompasses both the choice of ex change rate regime as well as active intervention policies within the given 1 system. Much of the recent policy discussion has focussed on the first issue, in particular proposals of how to reform the present international monetary order. And new systems such as the European Monetary System (EMS) have emerged for subgroups of countries. However, the question of finding the optimal system has not yet been resolved.
Author : Markus Bruetsch
Publisher : GRIN Verlag
ISBN 13 : 3638201481
Total Pages : 24 pages
Book Rating : 4.6/5 (382 download)
Download or read book Money Market Interventions written by Markus Bruetsch and published by GRIN Verlag. This book was released on 2003-06-30 with total page 24 pages. Available in PDF, EPUB and Kindle. Book excerpt: Essay from the year 2003 in the subject Business economics - Banking, Stock Exchanges, Insurance, Accounting, grade: 1,5 (A), Oxford Brookes University (Business School), course: Synoptic Essays in International Banking & Finance, language: English, abstract: After the collapse of the Bretton-Woods-System in 1973 and the transition to a system of floating rates between the major global currencies, central banks still use interventions for exchange rate maintenance. This paper aims to examine the function of Central Bank operations in foreign exchange markets on the basis of two empirical data sets, explaining both, appreciation and depreciation. It tries to analyse the impacts on capital flows recorded in the balance of payments and the efficiency of interventions. Further it will analyse the impacts on domestic monetary supplies and if necessary how to sterilise these effects. At certain stages endnotes will refer to the appendix for more detailed explanations or data. To illustrate, how central bank interventions work, we will take the European Central Bank (ECB) as an example and concentrate on two currencies, the euro (€) and the US dollar ($). [...] If the ECB aims at an appreciation of the own currency, the bank will engage in a foreign exchange operation and buy euros against its US dollar reserves. The demand for euros increases (demand curve shifts to the right) and simultaneously supply is reduced, because the ECB takes Euro out of the market (supply curve shifts to the left). Through the forces of supply and demand the value of the euro will strengthen in international markets (the exchange rate moves from r1 to r2). Depreciation (see diagram 2) If the ECB aims at a depreciation of the own currency, the bank will sell euros against dollars. In this case, demand for euros declines (demand curve shifts to left) and the supply increases (shift to the right) because the ECB pays the purchased dollars in euro. Again, the forces of supply and demand determine the new exchange rate at r2. The value of the euro will weaken in international markets (and inversely the US dollar value will rise). [...]
Author : Mr.Ousmene Mandeng
Publisher : International Monetary Fund
ISBN 13 : 1451855729
Total Pages : 18 pages
Book Rating : 4.4/5 (518 download)
Download or read book Central Bank Foreign Exchange Market Intervention and Option Contract Specification written by Mr.Ousmene Mandeng and published by International Monetary Fund. This book was released on 2003-06-01 with total page 18 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.
Author : Roberto Pereira Guimarães
Publisher : International Monetary Fund
ISBN 13 : 1451854641
Total Pages : 34 pages
Book Rating : 4.4/5 (518 download)
Download or read book The Empirics of Foreign Exchange Intervention in Emerging Markets written by Roberto Pereira Guimarães and published by International Monetary Fund. This book was released on 2004-07-01 with total page 34 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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 : Jonathan Kearns
Publisher :
ISBN 13 :
Total Pages : 48 pages
Book Rating : 4.:/5 (318 download)
Download or read book Identifying the Efficacy of Central Bank Interventions written by Jonathan Kearns and published by . This book was released on 2002 with total page 48 pages. Available in PDF, EPUB and Kindle. Book excerpt: The endogeneity of exchange rates and intervention has long plagued studies of the effectiveness of central banks actions in foreign exchange markets. Researchers have either excluded contemporaneous intervention, so that their explanators are predetermined, or obtained a small, and typically incorrectly signed, coefficient on contemporaneous intervention. Failing to account for the endogeneity, when central banks lean against the wind and trade strategically, will likely result in a large downward bias to the coefficient on contemporaneous intervention -- explaining the negative coefficient frequently obtained. We use an alternative identification assumption, a change in Reserve Bank of Australia intervention policy, that allows us to estimate, using simulated GMM, a model that includes the contemporaneous impact of intervention. There are three main results. Our point estimates suggest that central bank intervention has a economically significant contemporaneous effect. A $US100m purchase of the domestic currency will appreciate the exchange rate by 1.35 to 1.81 per cent. This estimate is remarkably similar to the calibration conducted by Dominguez and Frankel (1993), who themselves noted their estimate was larger than previous empirical findings. Secondly, the vast majority of the effect of an intervention on the exchange rate is found to occur during the day in which it is conducted, with only a smaller impact on subsequent days. Finally, we confirm findings that Australian central bank intervention policy can be characterized by leaning aginst the wind.
Author : Kathryn Dominguez
Publisher : Routledge
ISBN 13 : 1317559134
Total Pages : 169 pages
Book Rating : 4.3/5 (175 download)
Download or read book Exchange Rate Efficiency and the Behavior of International Asset Markets (Routledge Revivals) written by Kathryn Dominguez and published by Routledge. This book was released on 2014-10-20 with total page 169 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book, first published in 1992, examines the subject of foreign exchange market efficiency and, in particular, the effectiveness of central bank intervention in the market. This book is ideal for students of economics.
Author : Kathryn M. Dominguez
Publisher :
ISBN 13 :
Total Pages : 56 pages
Book Rating : 4.:/5 (318 download)
Download or read book The Market Microstructure of Central Bank Intervention written by Kathryn M. Dominguez and published by . This book was released on 1999 with total page 56 pages. Available in PDF, EPUB and Kindle. Book excerpt: One of the great unknowns in international finance is the process by which new information influences exchange rate behavior. This paper focuses on one important source of information to the foreign exchange markets, the intervention operations of the G-3 central banks. Previous studies using daily and weekly foreign exchange rate data suggest that central bank intervention operations can influence both the level and variance of exchange rates, but little is known about how exactly traders learn of these operations and whether intra-daily market conditions influence the effectiveness of central bank interventions. This paper uses high-frequency data to examine the relationship between the efficacy of intervention operations and the 'state of the market' at the moment that the operation is made public to traders. The results indicate that some traders know that a central bank is intervening at least one hour prior to the public release of the information in newswire reports. Also, the evidence suggests that the timing of intervention operations matter interventions that occur during heavy trading volume and that are closely timed to scheduled macro announcements are the most likely to have large effects. Finally, post-intervention mean reversion in both exchange rate returns and volatility indicate that dealer inventories are affected by market reactions to intervention news.
Author : Michael D. Bordo
Publisher : University of Chicago Press
ISBN 13 : 022605151X
Total Pages : 453 pages
Book Rating : 4.2/5 (26 download)
Download or read book Strained Relations written by Michael D. Bordo and published by University of Chicago Press. This book was released on 2015-03-02 with total page 453 pages. Available in PDF, EPUB and Kindle. Book excerpt: During the twentieth century, foreign-exchange intervention was sometimes used in an attempt to solve the fundamental trilemma of international finance, which holds that countries cannot simultaneously pursue independent monetary policies, stabilize their exchange rates, and benefit from free cross-border financial flows. Drawing on a trove of previously confidential data, Strained Relations reveals the evolution of US policy regarding currency market intervention, and its interaction with monetary policy. The authors consider how foreign-exchange intervention was affected by changing economic and institutional circumstances—most notably the abandonment of the international gold standard—and how political and bureaucratic factors affected this aspect of public policy.
