Interdependencies between Monetary policy and Foreign-Exchange Intervention under Inflation Targeting: The Case of Brazil and the Czech Republic
The bulk of recent literature on foreign-exchange interventions has overlooked the potential interdependencies that may exist between these operations and the conduct of monetary policy. This is the case even under inflation targeting and especially in emerging-market economies, because central bank...
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| Format: | Elektronisch E-Book |
| Sprache: | English |
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Paris
OECD Publishing
2008
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| Schriftenreihe: | OECD Economics Department Working Papers
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| Zusammenfassung: | The bulk of recent literature on foreign-exchange interventions has overlooked the potential interdependencies that may exist between these operations and the conduct of monetary policy. This is the case even under inflation targeting and especially in emerging-market economies, because central banks often explicitly reserve the right to intervene to calm disorderly markets and to accumulate foreign reserves, and when the exchange rate is perceived as out of step with fundamentals. This paper uses a friction model to estimate intervention reaction functions and the associated marginal effects for Brazil and the Czech Republic since adoption of inflation targeting in these countries in 1999 and 1998, respectively. The main findings are that: i) in both countries interventions occur predominantly to reduce exchange-rate volatility, while in Brazil the central bank also reacts to exchange-rate deviations from medium-term trends; ii) there are strong, asymmetric threshold effects in the reaction functions, and interventions are more likely and of higher magnitudes when they are carried out to depreciate than to appreciate the domestic currency; and iii) interventions seem to take place independently of contemporaneous monetary policy in Brazil, but not in the Czech Republic, where both policies appear to be interrelated |
| Beschreibung: | 1 Online-Ressource (31 Seiten) 21 x 29.7cm |
| DOI: | 10.1787/245585283155 |
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| 520 | |a The bulk of recent literature on foreign-exchange interventions has overlooked the potential interdependencies that may exist between these operations and the conduct of monetary policy. This is the case even under inflation targeting and especially in emerging-market economies, because central banks often explicitly reserve the right to intervene to calm disorderly markets and to accumulate foreign reserves, and when the exchange rate is perceived as out of step with fundamentals. This paper uses a friction model to estimate intervention reaction functions and the associated marginal effects for Brazil and the Czech Republic since adoption of inflation targeting in these countries in 1999 and 1998, respectively. The main findings are that: i) in both countries interventions occur predominantly to reduce exchange-rate volatility, while in Brazil the central bank also reacts to exchange-rate deviations from medium-term trends; ii) there are strong, asymmetric threshold effects in the reaction functions, and interventions are more likely and of higher magnitudes when they are carried out to depreciate than to appreciate the domestic currency; and iii) interventions seem to take place independently of contemporaneous monetary policy in Brazil, but not in the Czech Republic, where both policies appear to be interrelated | ||
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| spelling | de Mello, Luiz Verfasser aut Interdependencies between Monetary policy and Foreign-Exchange Intervention under Inflation Targeting The Case of Brazil and the Czech Republic Luiz de Mello, Diego Moccero and Jean-Yves Gnabo = Interdépendance entre politique monétaire et interventions sur le marché du change dans des régimes de ciblage d'inflation : le cas du Brésil et de la République tchèque / Luiz de Mello, Diego Moccero et Jean-Yves Gnabo Interdépendance entre politique monétaire et interventions sur le marché du change dans des régimes de ciblage d'inflation Paris OECD Publishing 2008 1 Online-Ressource (31 Seiten) 21 x 29.7cm txt rdacontent c rdamedia cr rdacarrier OECD Economics Department Working Papers The bulk of recent literature on foreign-exchange interventions has overlooked the potential interdependencies that may exist between these operations and the conduct of monetary policy. This is the case even under inflation targeting and especially in emerging-market economies, because central banks often explicitly reserve the right to intervene to calm disorderly markets and to accumulate foreign reserves, and when the exchange rate is perceived as out of step with fundamentals. This paper uses a friction model to estimate intervention reaction functions and the associated marginal effects for Brazil and the Czech Republic since adoption of inflation targeting in these countries in 1999 and 1998, respectively. The main findings are that: i) in both countries interventions occur predominantly to reduce exchange-rate volatility, while in Brazil the central bank also reacts to exchange-rate deviations from medium-term trends; ii) there are strong, asymmetric threshold effects in the reaction functions, and interventions are more likely and of higher magnitudes when they are carried out to depreciate than to appreciate the domestic currency; and iii) interventions seem to take place independently of contemporaneous monetary policy in Brazil, but not in the Czech Republic, where both policies appear to be interrelated Economics Brazil Czech Republic Moccero, Diego ctb Gnabo, Jean-Yves ctb https://doi.org/10.1787/245585283155 Verlag kostenfrei Volltext |
| spellingShingle | de Mello, Luiz Interdependencies between Monetary policy and Foreign-Exchange Intervention under Inflation Targeting The Case of Brazil and the Czech Republic Economics Brazil Czech Republic |
| title | Interdependencies between Monetary policy and Foreign-Exchange Intervention under Inflation Targeting The Case of Brazil and the Czech Republic |
| title_alt | Interdépendance entre politique monétaire et interventions sur le marché du change dans des régimes de ciblage d'inflation |
| title_auth | Interdependencies between Monetary policy and Foreign-Exchange Intervention under Inflation Targeting The Case of Brazil and the Czech Republic |
| title_exact_search | Interdependencies between Monetary policy and Foreign-Exchange Intervention under Inflation Targeting The Case of Brazil and the Czech Republic |
| title_exact_search_txtP | Interdependencies between Monetary policy and Foreign-Exchange Intervention under Inflation Targeting The Case of Brazil and the Czech Republic |
| title_full | Interdependencies between Monetary policy and Foreign-Exchange Intervention under Inflation Targeting The Case of Brazil and the Czech Republic Luiz de Mello, Diego Moccero and Jean-Yves Gnabo = Interdépendance entre politique monétaire et interventions sur le marché du change dans des régimes de ciblage d'inflation : le cas du Brésil et de la République tchèque / Luiz de Mello, Diego Moccero et Jean-Yves Gnabo |
| title_fullStr | Interdependencies between Monetary policy and Foreign-Exchange Intervention under Inflation Targeting The Case of Brazil and the Czech Republic Luiz de Mello, Diego Moccero and Jean-Yves Gnabo = Interdépendance entre politique monétaire et interventions sur le marché du change dans des régimes de ciblage d'inflation : le cas du Brésil et de la République tchèque / Luiz de Mello, Diego Moccero et Jean-Yves Gnabo |
| title_full_unstemmed | Interdependencies between Monetary policy and Foreign-Exchange Intervention under Inflation Targeting The Case of Brazil and the Czech Republic Luiz de Mello, Diego Moccero and Jean-Yves Gnabo = Interdépendance entre politique monétaire et interventions sur le marché du change dans des régimes de ciblage d'inflation : le cas du Brésil et de la République tchèque / Luiz de Mello, Diego Moccero et Jean-Yves Gnabo |
| title_short | Interdependencies between Monetary policy and Foreign-Exchange Intervention under Inflation Targeting |
| title_sort | interdependencies between monetary policy and foreign exchange intervention under inflation targeting the case of brazil and the czech republic |
| title_sub | The Case of Brazil and the Czech Republic |
| topic | Economics Brazil Czech Republic |
| topic_facet | Economics Brazil Czech Republic |
| url | https://doi.org/10.1787/245585283155 |
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