The implementation of macroprudential policies for improving a country's financial stability have become more common in emerging markets. The aim of this paper is to analyse the effect of macroprudential policy on both capital flow volatility and price stability in emerging market economies. The analysis covers the Global Financial Crisis and post-crisis period. The effects of general macroprudential variables including leverage growth and credit growth and specific instruments, namely loan-to-value caps and reserve requirements on capital inflow, capital outflow and price stability have been tested. Propensity score matching techniques have been used to measure the effectiveness of various macroprudential policy measures on capital flow volatility. Major findings indicate monetary policy instruments are effective in pursuing both monetary policy objectives and macroprudential objectives. Short term capital account volatility is seen to respond to macroprudential policy instruments. Propensity score matching was only successfully implemented for capital volatility. Results show that increased measures for macroprudential policy are effective for capital outflow and, decreased measures for macroprudential policy are effective, to a lesser extent, for capital inflows. Furthermore, meaningful correlation between increased macroprudential measures during periods of tight monetary policy exists only for capital outflows.
This paper examines the effects of quantitative easing (QE) announcements by emerging market central banks in Europe during the COVID-19 pandemic, particularly on exchange rates with a higher frequency setting. Two different methodologies are used for analysing the policy announcement effects. The first methodology is the event study method that measures the sample exchange rates’ mean and cumulative mean abnormal return around the time of event. The second one is the time series approach that measures asymmetric behaviour of the exchange rate volatility to monetary policy shocks by employing exponential GARCH model. The results show that the foreign exchange markets respond to QE announcements in all selected countries. The response of exchange rates varies across countries and event windows. QE announcements cause appreciation of domestic currency in Hungary and Poland, and depreciation in Turkey. Additionally, the QE announcements increase exchange rate volatility in Hungary and Poland while they reduce volatility in Turkey. The asymmetric behaviour of domestic currencies prevails in all selected countries, but this asymmetry is sensitive to the exchange rate and the length of the window.
This paper investigates the extent to which domestic and foreign money balances in emerging European countries are influenced by foreign exchange considerations.A well-specified and stable relationship between real money demand and the exchange rate can be perceived as an important part of a successful monetary policy.This study examines the long-run determinants of real exchange rates (RERs)associated with the behavioral equilibrium exchange rate (BEER) approach and identifies currency misalignments in these countries. The misalignment is later used to test the nonlinear behavior of the demand for money. The results indicate that the RER misalignments have a significant impact on domestic money demand. When the currencies are overvalued, there is a reduction in domestic money demand, and when they are undervalued, there is an increase in domestic money demand. Furthermore, it can be concluded that overvaluation causes an increase in foreign money demand indicating a shift of preference from domestic to foreign currency.
K E Y W O R D Sbehavioral equilibrium exchange rate, demand for money, misalignments, real exchange rates, smooth transition regressionThis is an open access article under the terms of the Creative Commons Attribution License, which permits use, distribution and reproduction in any medium, provided the original work is properly cited.
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