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Central Bank Interventions, Communication & Interest Rate Policy in Emerging European Economies

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  • Balázs Égert

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Abstract

This paper analyses the effectiveness of foreign exchange interventions in Croatia, the Czech Republic, Hungary, Romania, Slovakia and Turkey using the event study approach. Interventions are found to be effective only in the short run when they ease appreciation pressures. Central bank communication and interest rate steps considerably enhance their effectiveness. The observed effect of interventions on the exchange rate corresponds to the declared objectives of the central banks of Croatia, the Czech Republic, Hungary and perhaps also Romania, whereas this is only partially true for Slovakia and Turkey. Finally, interventions are mostly sterilized in all countries except Croatia. Interventions are not much more effective in Croatia than in the other countries studied. This suggests that unsterilized interventions do not automatically inuence the exchange rate.

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Bibliographic Info

Paper provided by William Davidson Institute at the University of Michigan in its series William Davidson Institute Working Papers Series with number wp846.

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Length: pages
Date of creation: 01 Nov 2006
Date of revision:
Handle: RePEc:wdi:papers:2006-846

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Keywords: central bank intervention; communication; foreign exchange intervention; verbal intervention;

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  1. Disyatat, Piti & Galati, Gabriele, 2007. "The effectiveness of foreign exchange intervention in emerging market countries: Evidence from the Czech koruna," Journal of International Money and Finance, Elsevier, Elsevier, vol. 26(3), pages 383-402, April.
  2. Owen F. Humpage, 1996. "U.S. intervention: assessing the probability of success," Working Paper, Federal Reserve Bank of Cleveland 9608, Federal Reserve Bank of Cleveland.
  3. 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.
  4. Sarno, Lucio & Taylor, Mark P, 2001. "Official Intervention in the Foreign Exchange Market: Is It Effective, and, If So, How Does It Work?," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2690, C.E.P.R. Discussion Papers.
  5. Egert, Balazs & Komarek, Lubos, 2006. "Foreign exchange interventions and interest rate policy in the Czech Republic: Hand in glove?," Economic Systems, Elsevier, Elsevier, vol. 30(2), pages 121-140, June.
  6. Tomas Holub, 2004. "Foreign Exchange Interventions Under Inflation Targeting: The Czech Experience," Research and Policy Notes, Czech National Bank, Research Department 2004/01, Czech National Bank, Research Department.
  7. Scalia, Antonio, 2008. "Is foreign exchange intervention effective? Some microanalytical evidence from the Czech Republic," Journal of International Money and Finance, Elsevier, Elsevier, vol. 27(4), pages 529-546, June.
  8. Jesus Crespo-Cuaresma & Jarko Fidrmuc & Ronald MacDonald, 2005. "The monetary approach to exchange rates in the CEECs," The Economics of Transition, The European Bank for Reconstruction and Development, The European Bank for Reconstruction and Development, vol. 13(2), pages 395-416, 04.
  9. Rasmus Fatum & Michael M. Hutchison, . "Is Sterilized Foreign Exchange Intervention Effective After All? An Event Study Approach," EPRU Working Paper Series, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics 99-09, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
  10. Fatum, Rasmus, 2008. "Daily effects of foreign exchange intervention: Evidence from official Bank of Canada data," Journal of International Money and Finance, Elsevier, Elsevier, vol. 27(3), pages 438-454, April.
  11. Hali Edison & Paul Cashin & Hong Liang, 2006. "Foreign exchange intervention and the Australian dollar: has it mattered?," International Journal of Finance & Economics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 11(2), pages 155-171.
  12. Ilker Domac & Alfonso Mendoza, 2002. "Is there Room for Forex Interventions under Inflation Targeting Framework? Evidence from Mexico and Turkey," Discussion Papers, Research and Monetary Policy Department, Central Bank of the Republic of Turkey 0206, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
  13. Fratzscher, Marcel, 2005. "How successful are exchange rate communication and interventions? Evidence from time-series and event-study approaches," Working Paper Series, European Central Bank 0528, European Central Bank.
  14. Fatum, Rasmus, 2000. "On the effectiveness of sterilized foreign exchange intervention," Working Paper Series, European Central Bank 0010, European Central Bank.
  15. A. Craig MacKinlay, 1997. "Event Studies in Economics and Finance," Journal of Economic Literature, American Economic Association, American Economic Association, vol. 35(1), pages 13-39, March.
  16. Zsolt Ersek, 2005. "Defending the strong side of the band - the Hungarian experience," BIS Papers chapters, Bank for International Settlements, in: Bank for International Settlements (ed.), Foreign exchange market intervention in emerging markets: motives, techniques and implications, volume 24, pages 171-76 Bank for International Settlements.
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