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Daily Currency Interventions in Emerging Markets: Incorporating Reserve Accumulation

Author

Listed:
  • Murat Midiliç

    () (Ghent University)

  • Michael Frömmel

    () (Ghent University)

Abstract

This study considers international reserve management motivation of emerging market central banks in foreign exchange market interventions. Emerging market central banks use currency intervention as a policy tool against exchange rate movements and accumulate international reserves as an insurance against sudden-stops in capital flows. To account for both of these motivations, a model of infrequent interventions only with exchange rates is extended to include international reserves-to-gross domestic product (GDP) ratio at the daily frequency. Daily values of the ratio are forecast using the Mixed Data Sampling (MIDAS) model and exchange rate returns. The model is estimated by using the floating exchange rate regime period data of Turkey. Compared with the benchmark model, it is shown that the MIDAS model does a better job in the forecasting of the reserve-to-GDP ratio. In addition to that, there are breaks in the interventions policy in Turkey, and the extended intervention model performs better than the model only with exchange rates especially in predicting purchases of US Dollar.

Suggested Citation

  • Murat Midiliç & Michael Frömmel, 2016. "Daily Currency Interventions in Emerging Markets: Incorporating Reserve Accumulation," Proceedings of International Academic Conferences 4106590, International Institute of Social and Economic Sciences.
  • Handle: RePEc:sek:iacpro:4106590
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    File URL: https://iises.net/proceedings/25th-international-academic-conference-oecd-paris/table-of-content/detail?cid=41&iid=042&rid=6590
    File Function: First version, 2016
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    Cited by:

    1. repec:kap:openec:v:30:y:2019:i:2:d:10.1007_s11079-019-09528-8 is not listed on IDEAS
    2. Jeffrey Frankel, 2019. "Systematic Managed Floating," Open Economies Review, Springer, vol. 30(2), pages 255-295, April.

    More about this item

    Keywords

    currency intervention; international reserves; emerging markets; Turkey; mixed data sampling;

    JEL classification:

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

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