Patterns of foreign exchange intervention under inflation targeting

Adler, Gustavo; Chang, Kyun Suk; Wang, Zijiao

doi:10.1016/j.latcb.2021.100045

Cited by 7 publications

(3 citation statements)

References 37 publications

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“…The asymmetric behavior of the central bank's intervention is probably related to the low degree of ERPT as explained above. As emphasized by Adler et al (2021), central banks in the inflation targeting adopted emerging economies have dual inflationexchange rate objectives. They also argue that a higher propensity to overshoot inflation targets in emerging market economies in which foreign exchange intervention is more pervasive.…”

Section: Resultsmentioning

confidence: 99%

The role of foreign reserves in inflation dynamics

Kuncoro

2024

Econ. J. Emerg. Mark.

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Purpose – Central banks’ foreign reserve stocks in emerging markets have increased substantially in recent decades. Foreign reserves accumulation has been widely believed as a shock absorber to prevent financial crises. Meanwhile, accelerating foreign reserves might be contradictory to the monetary policy objectives. This research aims to investigate the impact of foreign reserves on the inflation dynamics.Method – We apply the inflation-expectation augmented Phillips curve on the monthly data over the period of 2005(7) to 2020(12) in the case of Indonesia. Findings – We show that stockpiling foreign exchange reserves indeed has an inflationary pressure impact. The central bank's intervention in the foreign exchange market is more significant in selling rather than purchasing foreign exchange. However, the non-monetary factors also play an important role in determining inflation. Implications – Considering channels through which foreign reserves might affect inflation, our findings suggest the monetary authority should be concerned with inflationary expectations in the short term as one of the major policy-driven goals to maintain price stability in the long run.Originality – This paper contributes to the literature on monetary policy in developing countries. Unlike other empirical studies, this research employs the inflation-expectation augmented Phillips curve and accommodates the issue of asymmetric effects of the change in foreign reserves.

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Section: Resultsmentioning

confidence: 99%

The role of foreign reserves in inflation dynamics

Kuncoro

2024

Econ. J. Emerg. Mark.

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“…Yet information on FXI remains scant for most countries. As a result, macroeconomic research on a wide range of aspects related to the use of FXI has often relied on coarse proxies-typically, changes in the stock of a central bank's reserves, or reserve flows from balance-of-payment statistics 1 -including for analysis of exchange rate regimes (see, for example, , currency manipulation Gagnon 2012Gagnon , 2013, and exchange rate management more broadly Dominguez 2012Dominguez , 2020Adler, Chang, and Wang 2021). These coarse proxies of FXI, however, are often polluted by valuation changes and investment income flows, as well as distorted by central bank foreign currency transactions vis-à-vis residents and nonresidents that affect the level of reserves but do not constitute foreign exchange intervention (that is, exchange of local and foreign currency assets).…”

Section: Introductionmentioning

confidence: 99%

Shocks and Capital Flows

2023

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“…The regime of floating exchange rates does not prevent the frequent adjustment of foreign reserves (Calvo and Reinhart, 2002). In fact, foreign exchange intervention is common under both inflation-targeting and noninflation-targeting regimes (Adler et al, 2021). In Peru, monetary authorities can apply official interventions in the foreign exchange market (Humala and Rodríguez, 2010).…”

Section: The Relevance Of Forex Interventions In Emerging Economiesmentioning

confidence: 99%

Monetary policy

Bui

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Monetary policy is a crucial tool used by most, not to say all, central banks to finetune macroeconomic conditions. However, empirical evidence regarding its effectiveness is mixed and based on the premise that monetary policy is appropriately measured and identified. Compared with the vast literature for advanced economies, studies investigating the problem of the indicator and identification of monetary policy are limited in emerging economies. ACKNOWLEDGEMENTI would like to thank my wife and family for their support and continuous care throughout my study in Hungary. Also, I would like to express my gratitude and appreciation to the supervisor -Dr Habil. Kiss Gabor David -and other colleagues for their guidance, comments, and corrections. Their contributions are of importance to complete the thesis.Moreover, I would like to show my appreciation to the Doctoral School of Economics of the University of Szeged, the Stipendium Hungaricum for their support during my study.Finally, I am grateful for precious comments of reviewers.

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Patterns of foreign exchange intervention under inflation targeting

Cited by 7 publications

References 37 publications

The role of foreign reserves in inflation dynamics

The role of foreign reserves in inflation dynamics

Shocks and Capital Flows

Monetary policy

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