Foreign Exchange Intervention under Policy Uncertainty - read free eBook in online reader or directly download on the web page. Select files or add your book in reader. Download and read online ebook Foreign Exchange Intervention under Policy Uncertainty write by Gustavo Adler. This book was released on 2016-03-23. Foreign Exchange Intervention under Policy Uncertainty available in PDF, EPUB and Kindle. We study the use of foreign exchange (FX) intervention as an additional policy instrument in an environment with learning, where agents infer the central bank policy rules from its policy actions. Under full information, a central bank focused on stabilizing output and inflation can achieve better outcomes by using FX intervention as an additional policy tool. Under policy uncertainty, where agents perceive that monetary policy may also have exchange rate stabilization goals, the use of FX intervention entails a trade-off, reducing output volatility while increasing inflation volatility. While having an additional policy tool is always beneficial, we find that the optimal magnitude of intervention is higher in monetary policy regimes with lower uncertainty. These results indicate that the benefits of using FX intervention as an additional stabilization tool are greater in regimes where monetary policy is credibly focused on output and inflation stabilization.
Foreign Exchange Intervention as a Monetary Policy Instrument
Foreign Exchange Intervention as a Monetary Policy Instrument - read free eBook in online reader or directly download on the web page. Select files or add your book in reader. Download and read online ebook Foreign Exchange Intervention as a Monetary Policy Instrument write by Felix Hüfner. This book was released on 2012-12-06. Foreign Exchange Intervention as a Monetary Policy Instrument available in PDF, EPUB and Kindle. 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.
Foreign Exchange Intervention Rules for Central Banks: A Risk-based Framework
Foreign Exchange Intervention Rules for Central Banks: A Risk-based Framework - read free eBook in online reader or directly download on the web page. Select files or add your book in reader. Download and read online ebook Foreign Exchange Intervention Rules for Central Banks: A Risk-based Framework write by Romain Lafarguette. This book was released on 2021-02-12. Foreign Exchange Intervention Rules for Central Banks: A Risk-based Framework available in PDF, EPUB and Kindle. 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.
Policy Uncertainty in Japan
Policy Uncertainty in Japan - read free eBook in online reader or directly download on the web page. Select files or add your book in reader. Download and read online ebook Policy Uncertainty in Japan write by Ms.Elif C Arbatli. This book was released on 2017-05-30. Policy Uncertainty in Japan available in PDF, EPUB and Kindle. We develop new economic policy uncertainty (EPU) indices for Japan from January 1987 onwards building on the approach of Baker, Bloom and Davis (2016). Each index reflects the frequency of newspaper articles that contain certain terms pertaining to the economy, policy matters and uncertainty. Our overall EPU index co-varies positively with implied volatilities for Japanese equities, exchange rates and interest rates and with a survey-based measure of political uncertainty. The EPU index rises around contested national elections and major leadership transitions in Japan, during the Asian Financial Crisis and in reaction to the Lehman Brothers failure, U.S. debt downgrade in 2011, Brexit referendum, and Japan’s recent decision to defer a consumption tax hike. Our uncertainty indices for fiscal, monetary, trade and exchange rate policy co-vary positively but also display distinct dynamics. VAR models imply that upward EPU innovations foreshadow deteriorations in Japan’s macroeconomic performance, as reflected by impulse response functions for investment, employment and output. Our study adds to evidence that credible policy plans and strong policy frameworks can favorably influence macroeconomic performance by, in part, reducing policy uncertainty.
Foreign Exchange Intervention and the Dutch Disease
Foreign Exchange Intervention and the Dutch Disease - read free eBook in online reader or directly download on the web page. Select files or add your book in reader. Download and read online ebook Foreign Exchange Intervention and the Dutch Disease write by Julia Faltermeier. This book was released on 2017-03-27. Foreign Exchange Intervention and the Dutch Disease available in PDF, EPUB and Kindle. We study the optimal foreign exchange (FX) intervention policy in response to a positive terms of trade shock and associated Dutch disease episode in a small open economy model. We find that during a Dutch disease episode tradable production drops below the socially optimal level, resulting in lower welfare under learningby- doing (LBD) externalities. FX reserves accumulation improves welfare by preventing a large appreciation of the real exchange rate and by inducing an efficient reallocation between the tradable and non-tradable sectors. For an empirically plausible parametrization of LBD externalities, the model predicts that in response to a 10 percent increase in commodity prices FX reserves should increase by 1.5 percent of GDP. We also find that the welfare gains from optimally using FX reserves are twice as high as the gains from relying only on monetary policy. These results suggest that FX intervention is a beneficial policy to counteract the loss of competitiveness during a Dutch disease episode.
