The Effectiveness Of Central Bank Intervention
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| Author | : Romain Lafarguette |
| Publisher | : International Monetary Fund |
| Total Pages | : 33 |
| Release | : 2021-02-12 |
| Genre | : Business & Economics |
| ISBN | : 1513569406 |
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 | : Gustavo Adler |
| Publisher | : International Monetary Fund |
| Total Pages | : 37 |
| Release | : 2016-04-12 |
| Genre | : Business & Economics |
| ISBN | : 148433230X |
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 | : Hali J. Edison |
| Publisher | : |
| Total Pages | : 76 |
| Release | : 1993 |
| Genre | : Business & Economics |
| ISBN | : 9780881653076 |
| Author | : Shamshad Akhtar |
| Publisher | : Asian Development Bank |
| Total Pages | : 324 |
| Release | : 2009-12-01 |
| Genre | : Business & Economics |
| ISBN | : 9292547577 |
This study examines the role and performance of central banks in low-income countries that have faced a range of domestic and external fragilities, aggravated by the global financial crisis that started in the United States and other advanced economies. It focuses on a select group of developing member countries of the Asian Development Bank in the Caucasus, Central Asia, and South Asia that have been and will continue to be vulnerable to adverse external developments.
| Author | : Mr.Heiko Hesse |
| Publisher | : International Monetary Fund |
| Total Pages | : 30 |
| Release | : 2009-09-01 |
| Genre | : Business & Economics |
| ISBN | : 1451873530 |
This paper provides evidence that central bank interventions had a statistically significant impact on easing stress in unsecured interbank markets during the first phase of the subprime crisis which began in July 2007. Extraordinary liquidity provisions, such as the Term Auction Facility by the Federal Reserve, are analyzed. First a decomposition of the Libor-OIS spread indicates that credit premia increased in importance as the crisis deepened. Second, using Markov switching models, central bank operations are then graphically associated with reductions in term funding stress. Finally, bivariate VAR and GARCH models are adopted to econometrically quantified these impacts. While helpful in compressing Libor spreads, the economic magnitudes of central interventions have overall not been very large.
| Author | : Gustavo Adler |
| Publisher | : International Monetary Fund |
| Total Pages | : 67 |
| Release | : 2021-02-19 |
| Genre | : Business & Economics |
| ISBN | : 1513566679 |
Foreign exchange intervention (FXI) is a highly debated topic. Yet, comprehensive and comparable data on FXI is hard to find. This paper provides a new dataset of FXI covering a large number of countries over the period 2000-20 at monthly and quarterly frequencies. It includes publicly available data for about 40 countries and carefully constructed proxies for 122 countries. Proxies are focused on both spot and derivative transactions that alter the central bank’s foreign currency position and account for a wide range of central bank operations, including vis-à-vis residents, the first proxy to do so to our knowledge. The paper discusses the merits of the new proxy relative to coarser measures traditionally used like the change in reserves, and potential definitional differences with published data. The paper also presents stylized facts using our newly constructed FXI proxies.
| Author | : Board of Governors of the Federal Reserve System |
| Publisher | : |
| Total Pages | : 0 |
| Release | : 2002 |
| Genre | : Banks and Banking |
| ISBN | : 9780894991967 |
Provides an in-depth overview of the Federal Reserve System, including information about monetary policy and the economy, the Federal Reserve in the international sphere, supervision and regulation, consumer and community affairs and services offered by Reserve Banks. Contains several appendixes, including a brief explanation of Federal Reserve regulations, a glossary of terms, and a list of additional publications.
| Author | : Mr.Luis Ignacio Jácome |
| Publisher | : International Monetary Fund |
| Total Pages | : 57 |
| Release | : 2015-03-17 |
| Genre | : Business & Economics |
| ISBN | : 1484303180 |
This paper provides a brief historical journey of central banking in Latin America to shed light on the debate about monetary policy in the post-global financial crisis period. The paper distinguishes three periods in Latin America’s central bank history: the early years, when central banks endorsed the gold standard and coped with the collapse of this monetary system; a second period, in which central banks turned into development banks under the aegis of governments at the expense of increasing inflation; and the “golden years,” when central banks succeeded in preserving price stability in an environment of political independence. The paper concludes by cautioning against overburdening central banks in Latin America with multiple mandates as this could end up undermining their hard-won monetary policy credibility.
| Author | : Michael D. Bordo |
| Publisher | : University of Chicago Press |
| Total Pages | : 453 |
| Release | : 2015-03-02 |
| Genre | : Business & Economics |
| ISBN | : 022605151X |
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.
| Author | : International Monetary Fund. Monetary and Capital Markets Department |
| Publisher | : INTERNATIONAL MONETARY FUND |
| Total Pages | : 132 |
| Release | : 2020-07-30 |
| Genre | : Business & Economics |
| ISBN | : 9781513551814 |
The paper reports to the Executive Board on its decision of April 29, 2019, to prepare an IMF Central Bank Transparency Code (CBT), which is linked to the 2017 Review of the Standards and Codes Initiative (RSCI), for a revision and update of the 1999 Monetary and Financial Policies Transparency Code (MFPT). Directors asked that the CBT should remove the overlap on financial policies covered by other international standards, expand the transparency standards to broader set of activities undertaken by many central banks since the 2008 financial crisis, and reorient the transparency standards to facilitate risk-based assessments to support policy effectiveness and address macroeconomic risks.
