Foreign exchange intervention and inflation targeting: The role of credibility

2019 ◽  
Vol 106 ◽  
pp. 103716
Author(s):  
Gustavo Adler ◽  
Ruy Lama ◽  
Juan Pablo Medina
Keyword(s):  
Foreign Exchange ◽  
Inflation Targeting ◽  
Foreign Exchange Intervention

scholarly journals Inflation targeting, disinflation, and debt traps in Argentina

2020 ◽  
Vol 17 (1) ◽  
pp. 78-105
Author(s):  
Emiliano Libman ◽  
Gabriel Palazzo
Keyword(s):  
Foreign Exchange ◽  
Current Account ◽  
Risk Premium ◽  
Inflation Targeting ◽  
Inflation Rate ◽  
Current Account Deficit ◽  
External Debt ◽  
Stabilization Process ◽  
Eventual Collapse

This paper highlights the role of external indebtedness and the presence of inflationary inertia in order to assess the effectiveness and sustainability of inflation targeting during disinflation episodes. As the recent Argentinian experience illustrates, a sluggish inflation rate and a significant current-account deficit may make the stabilization process difficult. To illustrate the point, we build a model that shows that, when inflation adjusts fast, the target may be achieved without building too much external debt. But if inflation adjusts slowly, an excessive build-up of external debt could lead to an increase in the risk premium, a sudden shortage of foreign exchange, and the eventual collapse of the inflation-targeting regime.

scholarly journals Patterns of Foreign Exchange Intervention under Inflation Targeting

2020 ◽  
Vol 20 (69) ◽  
Author(s):  
Gustavo Adler ◽  
Kyun Suk Chang ◽  
Zijiao Wang
Keyword(s):  
Foreign Exchange ◽  
Inflation Targeting ◽  
Foreign Currency ◽  
Emerging Market ◽  
Policy Instrument ◽  
Emerging Market Economies ◽  
Foreign Exchange Intervention ◽  
Market Economies ◽  
Monetary Regimes ◽  
Emerging Market Countries

The paper documents the use of foreign exchange intervention (FXI) across countries and monetary regimes, with special attention to its use under inflation targeting (IT). We find significant differences between advanced and emerging market economies, with the former group conducting FXI limitedly and broadly symmetrically, while the use of this policy instrument in emerging market countries is pervasive and mostly asymmetric (biased towards purchasing foreign currency, even after taking into account precautionary motives). Within emerging markets, the use of FXI is common both under IT and non-IT regimes. We find no evidence of FXI being used in response to inflation developments, while there is strong evidence that FXI responds to exchange rates, indicating that IT central banks in EMDEs have dual inflation/exchange rate objectives. We also find a higher propensity to overshoot inflation targets in emerging market economies where FXI is more pervasive.

scholarly journals Sudden Stops in Emerging Economies: The Role of World Interest Rates and Foreign Exchange Intervention

2021 ◽  
Vol 2020 (405) ◽  
Author(s):  
J. Scott Davis ◽  
◽  
Michael B. Devereux ◽  
Changhua Yu ◽  
◽  
...  
Keyword(s):  
Interest Rates ◽  
Foreign Exchange ◽  
Emerging Economies ◽  
Sudden Stops ◽  
Foreign Exchange Intervention

scholarly journals Is Foreign Exchange Intervention a Panacea in Diversified Circumstances? The Perspectives of Asymmetric Effects

2020 ◽  
Vol 12 (7) ◽  
pp. 2913
Author(s):  
Wenbo Wang ◽  
Dieu Thanh Le ◽  
Hail Park
Keyword(s):  
Economic Development ◽  
Impulse Response ◽  
Foreign Exchange ◽  
Impulse Response Functions ◽  
Response Functions ◽  
Foreign Exchange Intervention ◽  
Asymmetric Effects ◽  
Growing Body ◽  
Volatility Regimes

Owing to the country’s heavy reliance on exports, the role of foreign exchange intervention in South Korea’s economic development is self-evident. The effectiveness of the intervention is what we are concerned with in this paper. Recently, a growing body of literature has engaged in exploring the asymmetric effects of foreign exchange intervention both theoretically and empirically. Against this background, we employ a threshold vector autoregression (TVAR) model in parallel with its generalized impulse response functions (GIRFs) to show that there are asymmetric effects of the Bank of Korea (BOK)-led interventions regardless of the volatility regimes.

scholarly journals Inflation targeting, disinflation, and debt traps in Argentina

2020 ◽  
Vol 17 (1) ◽  
pp. 78-105
Author(s):  
Emiliano Libman ◽  
Gabriel Palazzo
Keyword(s):  
Foreign Exchange ◽  
Current Account ◽  
Risk Premium ◽  
Inflation Targeting ◽  
Inflation Rate ◽  
Current Account Deficit ◽  
External Debt ◽  
Stabilization Process ◽  
Eventual Collapse

This paper highlights the role of external indebtedness and the presence of inflationary inertia in order to assess the effectiveness and sustainability of inflation targeting during disinflation episodes. As the recent Argentinian experience illustrates, a sluggish inflation rate and a significant current-account deficit may make the stabilization process difficult. To illustrate the point, we build a model that shows that, when inflation adjusts fast, the target may be achieved without building too much external debt. But if inflation adjusts slowly, an excessive build-up of external debt could lead to an increase in the risk premium, a sudden shortage of foreign exchange, and the eventual collapse of the inflation-targeting regime.

Economic Growth: New Problems and New Risks

2006 ◽  
pp. 20-37 ◽  
Author(s):  
M. Ershov
Keyword(s):  
Economic Growth ◽  
Foreign Exchange ◽  
Driving Force ◽  
Structural Changes ◽  
Rate Of Growth

The economic growth, which is underway in Russia, raises new questions to be addressed. How to improve the quality of growth, increasing the role of new competitive sectors and transforming them into the driving force of growth? How can progressive structural changes be implemented without hampering the rate of growth in general? What are the main external and internal risks, which may undermine positive trends of development? The author looks upon financial, monetary and foreign exchange aspects of the problem and comes up with some suggestions on how to make growth more competitive and sustainable.

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