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Foreign Exchange Intervention: The Theoretical Debate and the Czech Koruna Episode

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  • Adam Geršl

Abstract

The strong appreciation of the Czech koruna over 2001?2002 and the foreign exchange interventions conducted by the Czech central bank under its inflation-targeting regime provide a good opportunity to consider the pros and cons of FX intervention, an often-controversial monetary-policy instrument. This article considers the koruna?s said appreciation, possible causation, and the policy measures taken by the central bank then to counter the appreciation. The theoretical channels through which foreign exchange intervention may influence the exchange rate, and empirical evidence of their effectiveness are presented. Finally, the FX interventions of the Czech National Bank are discussed and those conducted in a rather secret manner over July?September 2002 assessed as relatively effective.

Suggested Citation

  • Adam Geršl, 2004. "Foreign Exchange Intervention: The Theoretical Debate and the Czech Koruna Episode," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 54(3-4), pages 94-116, March.
    • Handle: RePEc:fau:fauart:v:54:y:2004:i:3-4:p:94-116
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    More about this item

    Keywords

    foreign exchange intervention; exchange rate; monetary policy; transmission channels;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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