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Modelling Central Bank Intervention Activity under Inflation Targeting

Author

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  • Roman Horvath

    () (Czech National Bank and IES, Charles University)

Abstract

Using daily data from the Czech Republic in 1/1/1998-31/12/2002, we find that foreign exchange intervention activity is determined by the degree of exchange rate misalignment and lagged intervention. Additionally, inflation targeting regime is a binding constraint of intervention activity.

Suggested Citation

  • Roman Horvath, 2007. "Modelling Central Bank Intervention Activity under Inflation Targeting," Economics Bulletin, AccessEcon, vol. 6(29), pages 1-8.
  • Handle: RePEc:ebl:ecbull:eb-07f40018
    as

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    References listed on IDEAS

    as
    1. Kim, Suk-Joong & Sheen, Jeffrey, 2002. "The determinants of foreign exchange intervention by central banks: evidence from Australia," Journal of International Money and Finance, Elsevier, vol. 21(5), pages 619-649, October.
    2. Ian Babetskii & Balázs Égert, 2005. "Equilibrium Exchange Rate in the Czech Republic: How Good is the Czech BEER?," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 55(5-6), pages 232-252, May.
    3. Neely, Christopher J., 2002. "The temporal pattern of trading rule returns and exchange rate intervention: intervention does not generate technical trading profits," Journal of International Economics, Elsevier, vol. 58(1), pages 211-232, October.
    4. Viktor Kotlán & David Navrátil, 2003. "Inflation Targeting as a Stabilization Tool: Its Design and Performance in the Czech Republic," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 53(5-6), pages 220-242, May.
    5. 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, vol. 13(2), pages 395-416, April.
    6. Kaminsky, Graciela L. & Lewis, Karen K., 1996. "Does foreign exchange intervention signal future monetary policy?," Journal of Monetary Economics, Elsevier, vol. 37(2-3), pages 285-312, April.
    7. Almekinders, Geert J. & Eijffinger, Sylvester C. W., 1996. "A friction model of daily Bundesbank and Federal Reserve intervention," Journal of Banking & Finance, Elsevier, vol. 20(8), pages 1365-1380, September.
    8. Lewis, Karen K, 1995. "Are Foreign Exchange Intervention and Monetary Policy Related, and Does It Really Matter?," The Journal of Business, University of Chicago Press, vol. 68(2), pages 185-214, April.
    9. Almekinders, Geert J & Eijffinger, Sylvester C W, 1994. "Daily Bundesbank and Federal Reserve Interventions: Are They a Reaction to Changes in the Level and Volatility of the DM/$-Rate?," Empirical Economics, Springer, vol. 19(1), pages 111-130.
    10. Mark P. Taylor & Lucio Sarno, 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.
    11. Adam Gersl & Tomás Holub, 2006. "Foreign Exchange Interventions Under Inflation Targeting: The Czech Experience," Contemporary Economic Policy, Western Economic Association International, vol. 24(4), pages 475-491, October.
    12. Baillie, Richard T. & Osterberg, William P., 1997. "Why do central banks intervene?," Journal of International Money and Finance, Elsevier, vol. 16(6), pages 909-919, December.
    13. Ito, Takatoshi & Yabu, Tomoyoshi, 2007. "What prompts Japan to intervene in the Forex market? A new approach to a reaction function," Journal of International Money and Finance, Elsevier, vol. 26(2), pages 193-212, March.
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    Cited by:

    1. Castillo-Maldonado, Carlos Eduardo, 2008. "Intervención cambiaria en Guatemala: ¿Ha sido efectiva?
      [Foreign Exchange Market Intervention in Guatemala: Has it been Effective?]
      ," MPRA Paper 79038, University Library of Munich, Germany.

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    JEL classification:

    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • F3 - International Economics - - International Finance

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