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Foreign Exchange Interventions and Interest Rate Policy in the Czech Republic: Hand in Glove?

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Author Info
Balazs Egert
Lubos Komarek

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Abstract

This paper studies the impact of daily official foreign exchange interventions on the Czech koruna's exchange rate vis-a-vis the euro (the German mark prior to 1999) from 1997 to 2002. Both the event study methodology, extended with official interest rate moves, and a variety of GARCH models reveal that central bank interventions, especially koruna purchases, seem to have been relatively ineffective from 1997 to mid-1998 compared to the size of the interventions. From mid-1998 to 2002, however, koruna sales turn out to be effective in smoothing the path of the exchange rate up to 60 days. Nevertheless, the event study approach indicates that the success of FX interventions may be intimately related to the coordination of intervention and interest rate policies.

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Paper provided by Czech National Bank, Research Department in its series Working Papers with number 2005/07.

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Date of creation: Dec 2005
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Handle: RePEc:cnb:wpaper:2005/07

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Related research
Keywords: Central bank intervention; Czech Republic; event study; foreign exchange intervention; GARCH; interest rate policy; transition economies.;

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Find related papers by JEL classification:
F31 - International Economics - - International Finance - - - Foreign Exchange

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Marcel Fratzscher, 2005. "How successful are exchange rate communication and interventions? Evidence from time-series and event-study approaches," Working Paper Series 528, European Central Bank. [Downloadable!]
  2. Christopher J. Neely, 2005. "An analysis of recent studies of the effect of foreign exchange intervention," Review, Federal Reserve Bank of St. Louis, issue Nov, pages 685-718. [Downloadable!]
    Other versions:
  3. Kim, Suk-Joong & Kortian, Tro & Sheen, Jeffrey, 2000. "Central bank intervention and exchange rate volatility -- Australian evidence," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 10(3-4), pages 381-405, December. [Downloadable!] (restricted)
    Other versions:
  4. Matías Tapia & Andrea Tokman, 2004. "Effects of Foreign Exchange Intervention Under Public Information: the Chilean Case," Working Papers Central Bank of Chile 255, Central Bank of Chile. [Downloadable!]
  5. Lucio Sarno & Mark P. Taylor, 2001. "Official Intervention in the Foreign Exchange Market: Is It Effective and, If So, How Does It Work?," Journal of Economic Literature, American Economic Association, vol. 39(3), pages 839-868, September. [Downloadable!] (restricted)
    Other versions:
  6. Ozge Akinci & Olcay Yucel Culha & Umit Ozlale & Gulbin Sahinbeyoglu, 2005. "The Effectiveness of Foreign Exchange Interventions for the Turkish Economy : A Post-Crisis Period Analysis," Working Papers 0506, Research and Monetary Policy Department, Central Bank of the Republic of Turkey. [Downloadable!]
  7. Gabriele Galati & Piti Disyatat, 2005. "The effectiveness of foreign exchange intervention in emerging market countries: evidence from the Czech koruna," BIS Working Papers 172, Bank for International Settlements. [Downloadable!]
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  8. Ana Maria Herrera & Pinar Ozbay, 2005. "A Dynamic Model of Central Bank Intervention," Working Papers 0501, Research and Monetary Policy Department, Central Bank of the Republic of Turkey. [Downloadable!]
  9. Ramana Ramaswamy & Hossein Samiei, 2000. "The Yen-Dollar Rate - Have Interventions Mattered?," IMF Working Papers 00/95, International Monetary Fund.
  10. Rasmus Fatum & Michael Hutchison, 2003. "Effectiveness of Official Daily Foreign Exchange Market Intervention Operations in Japan," NBER Working Papers 9648, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  11. Ilker Domac & Alfonso Mendoza, 2002. "Is there Room for Forex Interventions under Inflation Targeting Framework? Evidence from Mexico and Turkey," Discussion Papers 0206, Research and Monetary Policy Department, Central Bank of the Republic of Turkey. [Downloadable!]
  12. Dominguez, Kathryn M., 1998. "Central bank intervention and exchange rate volatility1," Journal of International Money and Finance, Elsevier, vol. 17(1), pages 161-190, February. [Downloadable!] (restricted)
  13. Hali J. Edison & Paul Cashin & Hong Liang, 2003. "Foreign Exchange Intervention and the Australian Dollar: Has it Mattered?," IMF Working Papers 03/99, International Monetary Fund. [Downloadable!]
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  14. Michael Ehrmann & Marcel Fratzscher & Roberto Rigobon, 2005. "Stocks, bonds, money markets and exchange rates - measuring international financial transmission," Working Paper Series 452, European Central Bank. [Downloadable!]
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  15. Morana, Claudio & Beltratti, Andrea, 2000. "Central bank interventions and exchange rates: an analysis with high frequency data," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 10(3-4), pages 349-362, December. [Downloadable!] (restricted)
  16. Rogers, J. M. & Siklos, P. L., 2003. "Foreign exchange market intervention in two small open economies: the Canadian and Australian experience," Journal of International Money and Finance, Elsevier, vol. 22(3), pages 393-416, June. [Downloadable!] (restricted)
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  17. Kearns, Jonathan & Rigobon, Roberto, 2005. "Identifying the efficacy of central bank interventions: evidence from Australia and Japan," Journal of International Economics, Elsevier, vol. 66(1), pages 31-48, May. [Downloadable!] (restricted)
  18. Humpage, Owen F, 1999. "U.S. Intervention: Assessing the Probability of Success," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 31(4), pages 731-47, November.
  19. Jorge Iván Canales Kriljenko, 2003. "Foreign Exchange Intervention in Developing and Transition Economies: Results of a Survey," IMF Working Papers 03/95, International Monetary Fund. [Downloadable!]
  20. Brissimis, Sophocles N. & Chionis, Dionysios P., 2004. "Foreign exchange market intervention: implications of publicly announced and secret intervention for the euro exchange rate and its volatility," Journal of Policy Modeling, Elsevier, vol. 26(6), pages 661-673, September. [Downloadable!] (restricted)
  21. Tomas Holub, 2004. "Foreign Exchange Interventions Under Inflation Targeting: The Czech Experience," Research and Policy Notes 2004/01, Czech National Bank, Research Department. [Downloadable!]
    Other versions:
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Balazs Egert, 2006. "Central Bank Interventions, Communication and Interest Rate Policy in Emerging European Economies," IEHAS Discussion Papers 0615, Institute of Economics, Hungarian Academy of Sciences. [Downloadable!]
    Other versions:
  2. Ian Babetskii & Ales Bulir & Fabrizio Coricelli & Jan Filacek & Michal Franta & Roman Horvath & Branislav Saxa & Katerina Smidkova, 2008. "CNB Economic Research Bulletin: Ten years of inflation targeting," Occasional Publications - Edited Volumes, Czech National Bank, Research Department, edition 1, volume 6, number rb06/1 edited by Ian Babetskii & Katerina Smidkova. [Downloadable!]
  3. Jarko Fidrmuc & Roman Horváth, 2006. "Credibility of Exchange Rate Policies in Selected EU New Members: Evidence from High Frequency Data," Working Papers IES 2006/28, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Oct 2006. [Downloadable!]
  4. Alena Bicakova & Kamil Dybczak & Ales Krejdl & Jiri Slacalek & Michal Slavik, 2007. "CNB Economic Research Bulletin: Fiscal policy and its sustainability," Occasional Publications - Edited Volumes, Czech National Bank, Research Department, edition 2, volume 5, number rb05/2 edited by Ian Babetskii & Vladimir Bezdek. [Downloadable!]
  5. Coricelli, Fabrizio & Égert, Balázs & MacDonald, Ronald, 2006. "Monetary transmission mechanism in Central and Eastern Europe: Gliding on a wind of change," BOFIT Discussion Papers 8/2006, Bank of Finland, Institute for Economies in Transition. [Downloadable!]
  6. Juraj Antal & Frantisek Brazdik & Jan Bruha & Martin Fukac & Adrian Pagan & Jiri Podpiera & Stanislav Polak & Yuliya Rychalovska, 2008. "CNB Economic Research Bulletin: Inflation Targeting and DSGE Models," Occasional Publications - Edited Volumes, Czech National Bank, Research Department, edition 2, volume 6, number rb06/2 edited by Juraj Antal & Jan Babecky. [Downloadable!]
  7. Balázs Égert, 2006. "Central Bank Interventions, Communication & Interest Rate Policy in Emerging European Economies," William Davidson Institute Working Papers Series wp846, William Davidson Institute at the University of Michigan Stephen M. Ross Business School. [Downloadable!]
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