nach oben

Empirical Economics

Erschienen in:

29.08.2017

Central bank interventions in a dollarized economy: managed floating versus inflation targeting

verfasst von: Gabriela Mundaca

Erschienen in: Empirical Economics | Ausgabe 4/2018

Einloggen

Aktivieren Sie unsere intelligente Suche, um passende Fachinhalte oder Patente zu finden.

search-config

KI-gestützte Suche

Aus

Abstract

Effects of interventions by the Banco Central de Reserva del Peru (BCRP) on the sol/USD exchange rate are studied. The BCRP is currently committed to following an inflation-targeting (IT) regime to intervene in the foreign exchange market only to reduce exchange-rate volatility and during specific segments of the day and to make these interventions public information. We find that interventions in the foreign exchange market by the BCRP have been effective in moving the sol/USD in the intended direction during both the past managed floating regime and the current IT regime. Interventions have, however, increased the volatility of the sol/USD, and this increase has continued very strongly under the IT regime. A conclusion is that the BCRP might not yet have gained a sufficiently strong reputation to effectively reduce the exchange-rate volatility.

Vorheriger Artikel The end of Brazilian big inflation: lessons to monetary policy from a standard New Keynesian model

Nächster Artikel What is the right balance between US monetary and fiscal policy? Explorations using simulated wavelet-based optimal tracking control

Sie haben noch keine Lizenz? Dann Informieren Sie sich jetzt über unsere Produkte:

Springer Professional "Wirtschaft"

Online-Abonnement

Mit Springer Professional "Wirtschaft" erhalten Sie Zugriff auf:

über 67.000 Bücher
über 340 Zeitschriften

aus folgenden Fachgebieten:

Bauwesen + Immobilien
Business IT + Informatik
Finance + Banking
Management + Führung
Marketing + Vertrieb
Versicherung + Risiko

Jetzt Wissensvorsprung sichern!

Jetzt informieren

Springer Professional "Wirtschaft+Technik"

Online-Abonnement

Mit Springer Professional "Wirtschaft+Technik" erhalten Sie Zugriff auf:

über 102.000 Bücher
über 537 Zeitschriften

aus folgenden Fachgebieten:

Automobil + Motoren
Bauwesen + Immobilien
Business IT + Informatik
Elektrotechnik + Elektronik
Energie + Nachhaltigkeit
Finance + Banking
Management + Führung
Marketing + Vertrieb
Maschinenbau + Werkstoffe
Versicherung + Risiko

Jetzt Wissensvorsprung sichern!

Jetzt informieren

Our analysis of the IT regime starts in 2004 and not in 2002 for two reasons: because an economy always needs to adapt to a new regime, and because we have as one objective to study the dynamics of intra-daily exchange rates which in Peru became available only in 2004.

The financial dollarization has steadily decreased over recent years, for example, in 2004, 70% of credit to the private sector was denominated in foreign currency; by the end of 2009, this figure decreased to around 55% (for deposits, this figure is more or less 50%).

In 2007, the production of copper contributed 3% to Peru’s GDP, the highest among all metals extracted, followed by gold whose GDP share was 2.1%. Most Peruvian mineral extraction is directed toward the export markets and gives Peru an important source of foreign currency. Copper is also the largest contributor to foreign reserves accumulation. In 2013, 23 and 19% of total export values were generated from copper and gold exports, respectively [Banco Central de Reserva del Peru (BCRP) 2015]. Moreover, net capital inflows amounted to an average of about 8% of GDP between 2010 and 2013, well above the average level in the Latin America region. In the last decade, Peru’s net capital flow was 6% of GDP (Tashu 2014).

Examples of such measures are the use of an overnight interest rate as an operational target to stabilize and make predictable the relevant short-term interest rates in the domestic currency. This should contribute to the development of the yield curve of interest rates for different maturities for public debt in domestic currency, and to foster incentives in the private sector to issue long-term instruments that can be used to hedge against exchange-rate risk and foreign exchange liquidity risks.

Guimaraes and Karacadag (2004) considered the period 1996–2003 for Mexico, while for Turkey the period 2001–2003. Domaç and Mendoza (2004) examined Mexico for the years between 1996 and 2001, and Turkey between 2001 and 2002.

Without the combined stochastic control \(w = (m,\upsilon )\), the exchange rate will follow a random walk.

The intermediate objective was the growth rate of the monetary base, while the operational target was the balances that the banking system maintains at the Central Bank on a daily basis (Banco 1999).

Different specifications were considering following the suggestions of Ito (2003) and Ito and Yabu (2007) to find out that these specifications were the best possible ones.

If all the explanatory variables are equal to zero, we find that during the managed floating regime, the probability of selling foreign currency was 0.00 (=cdf(−7.3697)), while that of buying was 0.0083 (=cdf(−2.3915)). During the IT regime before the crisis, the probability of selling foreign currency was 0.1294 (=cdf(−1.1291)), and of buying was 0.00 (=cdf(−24.4924). For the IT regime during the crisis, the probability of selling was 0.1324 (=cdf(−1.1149), while of buying was 0.0279 (=cdf(−1.9112).

Aghion P, Bacchetta P, Ranciere R, Rogoff K (2009) Exchange rate volatility and productivity growth: The role of financial development. J Monet Econ 56:494–513

Aizenman J, Lee J (2007) International reserves: precautionary versus mercantilist views, theory, and evidence. Open Econ Rev 11:191–214CrossRef

Adler G, Tovar C (2011) Foreign exchange intervention: A shield against appreciation winds? IMF working paper 11/165, International Monetary Fund, Washington, DC

Allen H, Taylor MP (1990) Charts, noise, and fundamentals in the foreign exchange market. Econ J 29:49–59CrossRef

Allen H, Taylor MP (1992) The use of technical analysis in the foreign market. J Int Money Finance 11(3):304–314CrossRef

Almekinders GJ, Eijffinger SCW (1996) A friction model of daily bundesbank and federal reserve intervention. J Bank Finance 20:1365–1380CrossRef

Archer D (2005) Foreign exchange market intervention: methods and tactics. In: Foreign exchange market intervention in emerging markets: motives, techniques and implications. BIS papers no 24, Basel, Switzerland

Armas A (2005) Forex interventions in Peru: 2004–2004. In: Foreign exchange market intervention in emerging markets: motives, techniques and implications. BIS papers #24, Basel, Switzerland

Banco Central de Reserva del Perú (BCRP) (1999) La Política Monetaria del Banco Central de Reserva del Perú. Notas de Estudios, Lima, Peru

Bank for International Settlements (2005) Foreign exchange market intervention in emerging markets: motives, techniques and implications. BIS papers #24, Basel, Switzerland

Berganza JC, Broto C (2012) Flexible inflation targets, forex interventions and exchange rate volatility in emerging countries. J Int Money Finance 31:428–444CrossRef

Bollerslev T, Melvin M (1994) Bid-ask spreads and volatility in the foreign exchange market. An empirical analysis. J Int Econ 36:355–372CrossRef

Calvo G, Reinhart C (2002) Fear of floating. Q J Econ 117:379–408CrossRef

Canales-Kriljenko, Ivan J, Guimaraes R, Karacadag C (2003) Official intervention in the foreign exchange market: elements of best practice. IMF working paper 03/152, Washington DC

Cheung Y, Chinn M (2001) Currency traders and exchange rate dynamics: a survey of the US market. J Int Money Finance 20:439–471CrossRef

Chutasripanich N, Yetman J (2015) Foreign exchange intervention: strategies and effectiveness. BIS papers no. 499, Basel, Switzerland

Disyatat P, Galati G (2007) The effectiveness of foreign exchange intervention in emerging market countries: evidence from the Czech koruna. J Int Money Finance 26(3):383–400CrossRef

Domaç I, Mendoza A (2004). Is there room for foreign exchange interventions under an inflation targeting framework? World Bank policy research working paper # 3288, Washington, DC

Dominguez K (2003) The market microstructure of central bank intervention. J Int Econ 59:25–45CrossRef

Edison H (1993) The effectiveness of central bank intervention: a survey of the post-1982 lietrature. Special papers on international economics 18, Princeton University

Gersl A, Holub T (2006) Foreign exchange interventions under inflation targeting: the Czech experience. Contemp Econ Policy 24:475–491CrossRef

Gonzales M (2009) Disentangling the motives for foreign exchange intervention in Peru. In: IMF country report # 09/41, Peru: selected issues, pp 8–17, Washington, DC

Guimaraes R, Karacadag C (2004) The empirics of foreign exchange intervention in emerging markets. IMF working paper # 123, Washington DC

Henderson D (1984) Exchange market intervention operations: their role in financial policy and their effects. In: Bilson J, Marston R (eds) Exchange rate theory and practice, NBER conference report. University of Chicago Press, Chicago, pp 359–398

Hutchinson M (2003) Intervention and exchange rate stabilization policy in developing countries. Int Finance 6:109–127CrossRef

Heckman J (1978) Dummy endogeneous variables in a simultaneous equation system. Econometrica 46:931–959CrossRef

Howitt P (2003) Coordination failures. In: Snowdon B, Vane HR (eds) An encyclopedia of macroeconomics. Edward Elgar, Cheltenham, pp 140–144

Hung JH (1997) Intervention strategies and exchange rate volatility: a noise trading perspective. J Int Money Finance 16(5):779–793CrossRef

Humala A, Rodriguez G (2009) Foreign exchange intervention and exchange rate volatility in Peru. Working paper series # 2009-008, Banco Central de Reserva del Peru. Lima, Peru

Ito T (2003) Is foreign exchange intervention effective? The Japanese experiences in the 1990s. In: Mizen P (ed) Monetary history, exchange rates and financial markets. Essays in honour of Charles Goodhart. Edward Elgar Pub, Cheltenham

Ito T, Yabu T (2007) What prompts Japan to intervene in the Forex market? A new approach to a reaction function. J Int Money Finance 26:193–212CrossRef

Jeanne O, Rancière R (2006) The optimal level of international reserves for emerging market countries: formulas and applications. IMF working paper 06/229, Washington, DC

Johnson NL, Kotz S (1972) Distribution of statistics: continuous multivariate distributions. Wiley, New York

Kamil H (2008) Is central bank intervention effective under inflation targeting regimes? The case of Colombia. IMF Working Paper # 88, Washington DC

Kearns J, Rigobon R (2005) Identifying the efficacy of central bank interventions: evidence from Australia and Japan. J Int Econ 66:31–48CrossRef

Kim S (2003) Monetary policy, foreign exchange intervention, and the exchange rate in a unifying framework. J Int Econ 60(2):355–386CrossRef

Lee L (1978) Unionism and wage rates: a simultaneous equation model with qualitative and limited dependent variables. Int Econ Rev 19:415–433CrossRef

Levi-Yeyati E, Sturzenegger F (2007) Fear of appreciation. KSG working paper 07-047, Harvard University

Mishkin F, Savastano M (2001) Monetary strategies for Latin America. J Dev Econ 66:415–444CrossRef

Mundaca G (2001) Central bank interventions and exchange rate band regimes. J Int Money Finance 20:677–700CrossRef

Mundaca G, Øksendal B (1998) Optimal stochastic intervention control with application to the exchange rate. J Math Econ 29:225–243CrossRef

Mussa M (1981) The role of official interventions. Group of thirty occasional papers, no. 6, Group of Thirty, New York

Neely CJ (2001) The practice of central bank intervention: looking under the hood. Fed Reserve Bank St Louis Rev 83:1–10

Neely CJ (2005a) An analysis of recent studies of the effect of foreign exchange intervention. Federal Reserve Bank of St. Louis working paper 2005-030B

Neely CJ (2005b) Identification failure in a structural VAR with intervention: alternative identification and estimation. Unpublished manuscript, Federal Reserve Bank of St. Louis

Nelson DB (1991) Conditional heteroskedasticity in asset returns: a new approach. Econometrica 59:347–370CrossRef

Obstfeld M, Shambangh JC, Taylor AM (2005) The trilemma in history: tradeoffs among exchange rates, monetary policies, and capital mobility. Rev Econ Stat 87:423–438CrossRef

Olsen RJ (1980) A least squares correction for selectivity bias. Econometrica 48:1815–1820CrossRef

Rossini R, Quispe Z, Serrano E (2013) Foreign exchange intervention in Peru. BIS papers no. 73, Basel, Switzerland

Sarno L, Taylor MP (2001) Official intervention in the foreign exchange market: Is it effective, and if so, how does it work? J Econ Lit 39(3):839–68CrossRef

Svensson LEO (1999) Inflation targeting as monetary policy rule. J Monet Econ 43:607–654CrossRef

Svensson LEO (2000) Open-economy inflation targeting. J Int Econ 50(1):155–183CrossRef

Tashu M (2014) Motives and effectiveness of Forex interventions: evidence from Peru. IMF working paper 14/217, Washington, DC

Taylor MP (1995) The economics of exchange rates. J Econ Lit 33:13–47

Taylor MP (2004) Is official exchange rate intervention effective? Economica 71:1–11CrossRef

Taylor MP (2005) Official foreign exchange intervention as a coordinating signal in the dollar–yen market. Pac Econ Rev 10(1):73–82CrossRef

Tuna G (2011) The effectiveness of central bank intervention: evidence from Turkey. Appl Econ 43(14):1801–1815CrossRef

Titel: Central bank interventions in a dollarized economy: managed floating versus inflation targeting
verfasst von: Gabriela Mundaca
Publikationsdatum: 29.08.2017
Verlag: Springer Berlin Heidelberg
Erschienen in: Empirical Economics / Ausgabe 4/2018
Print ISSN: 0377-7332
Elektronische ISSN: 1435-8921
DOI: https://doi.org/10.1007/s00181-017-1331-5

Springer Professional

Abstract

Bitte loggen Sie sich ein, um Zugang zu Ihrer Lizenz zu erhalten.

Sie haben noch keine Lizenz? Dann Informieren Sie sich jetzt über unsere Produkte:

Springer Professional "Wirtschaft"

Springer Professional "Wirtschaft+Technik"

Weitere Artikel der Ausgabe 4/2018

Speculative price bubbles in urban housing markets

Estimations of cost metafrontier Malmquist productivity index: using international tourism hotels in Taiwan as an example

Cointegration and price discovery in US corn cash and futures markets

Erratum to: Loss modeling using Burr mixtures

A trend filtering method closely related to trend filtering

Quantile forecast combination using stochastic dominance

Premium Partner