scholarly journals An Interpretation of Recent Research on Exchange Rate Target Zones

1992 ◽  
Vol 6 (4) ◽  
pp. 119-144 ◽  
Author(s):  
Lars E. O Svensson
Keyword(s):  
Exchange Rate ◽  
Central Bank ◽  
Exchange Rates ◽  
Interest Rates ◽  
Empirical Research ◽  
Target Zones ◽  
The Difference ◽  
Exchange Rate Target Zones ◽  
Main Ideas ◽  
Central Bank Interventions

How do exchange rate bands work compared to completely fixed rates (between realignments); or, more precisely, what are the dynamics of exchange rates, interest rates, and central bank interventions within exchange rate bands? Does the difference between bands and completely fixed exchange rates matter, and if so, which of the two arrangements is best; or, more precisely, what are the tradeoffs that determine the optimal bandwidth? This article will present an interpretation of some selected recent theoretical and empirical research on exchange rate target zones, with emphasis on main ideas and results and without technical detail.

Trading Rule Profitability and Central Bank Interventions in the Dollar-Deutsch mark Market / Der Zusammenhang zwischen der Profitabilität einer technischen Handelsstrategie und Zentralbankinterventionen im D-Mark/US-Dollar-Markt

2004 ◽  
Vol 224 (6) ◽  
Author(s):  
Michael Frenkel ◽  
Georg Stadtmann
Keyword(s):  
Exchange Rate ◽  
Central Bank ◽  
Exchange Rates ◽  
Moving Average ◽  
Trading Rule ◽  
Technical Trading ◽  
Var Analysis ◽  
Us Dollar ◽  
Central Bank Interventions ◽  
The Relationship

SummaryThe paper examines the relationship between central bank interventions in the dollar-deutschmark market and the profitability of technical trading for the period 1979-1992. While previous work on this topic focused on the interventions of the Fed, we include data on Bundesbank interventions and show that there were several similarities. Our analysis yields the result that eliminating days of Fed and Bundesbank interventions causes a simple moving average trading rule to become unprofitable. In addition, we study the dynamics of intra-day exchange rates following and preceding interventions and provide a VAR analysis on the relationship between interventions and the change in the exchange rate. The results suggest that interventions did not cause the high profits of technical trading on intervention days frequently found in other studies.

scholarly journals The Exchange Rate Volatility in Indonesia and Policy Response

2014 ◽  
Author(s):  
Ferry Syarifuddin
Keyword(s):  
Exchange Rate ◽  
Central Bank ◽  
Exchange Rates ◽  
Interest Rates ◽  
Foreign Exchange ◽  
Exchange Rate Volatility ◽  
Commodity Prices ◽  
Policy Response ◽  
Long Run ◽  
The Exchange Rate

High fluctuation of exchange rate in short horizon is obviously making economic activity more risky as uncertainty rises. Moreover, volatile exchange rates also make commodity prices, interest rates and a host of other variables more volatile as well. Although changes in long-run exchange rates tend to undergo relatively gradual shifts, in the shorter horizon, the exchange rate might be very volatile. Then there should be a systematic and measured policy to mitigate the foreign exchange fluctuations and to minimize the fluctuations as well as to drive it to its fundamental value. In this part, USD/IDR volatility is investigated using GARCH approach. The results reveal that, USD/IDR volatility in Indonesia is persistent. On the other hand, the following studies also present the outcomes of effectiveness of policy response by the Central Bank. Foreign-exchange sale interventions by the Central Bank lead conditional volatility of the USD/IDR to decrease slightly.

scholarly journals A Theory of Foreign Exchange Interventions

2021 ◽  
Author(s):  
Sebastián Fanelli ◽  
Ludwig Straub
Keyword(s):  
Exchange Rate ◽  
Central Bank ◽  
Interest Rates ◽  
Open Economy ◽  
Small Open Economy ◽  
Bond Markets ◽  
Pecuniary Externality ◽  
Optimal Intervention ◽  
The Exchange Rate ◽  
Intervention Policy

Abstract We study a real small open economy with two key ingredients (1) partial segmentation of home and foreign bond markets and (2) a pecuniary externality that makes the real exchange rate excessively volatile in response to capital flows. Partial segmentation implies that, by intervening in the bond markets, the central bank can affect the exchange rate and the spread between home- and foreign-bond yields. Such interventions allow the central bank to address the pecuniary externality, but they are also costly, as foreigners make carry trade profits. We analytically characterize the optimal intervention policy that solves this trade-off: (1) the optimal policy leans against the wind, stabilizing the exchange rate; (2) it involves smooth spreads but allows exchange rates to jump; (3) it partly relies on “forward guidance,” with non-zero interventions even after the shock has subsided; (4) it requires credibility, in that central banks do not intervene without commitment. Finally, we shed light on the global consequences of widespread interventions, using a multi-country extension of our model. We find that, left to themselves, countries over-accumulate reserves, reducing welfare and leading to inefficiently low world interest rates.

scholarly journals Modeling Sources of Asymmetry in the Volatility of the Moroccan Dirham Exchange Rate

2021 ◽  
Vol 8 (4) ◽  
pp. 31
Author(s):  
KHATTAB Ahmed ◽  
SALMI Yahya
Keyword(s):  
Exchange Rate ◽  
Central Bank ◽  
Exchange Rates ◽  
Foreign Exchange ◽  
Selection Criterion ◽  
Econometric Models ◽  
Interbank Market ◽  
Foreign Exchange Reserves ◽  
Central Bank Intervention ◽  
The Exchange Rate

The main objective of this paper is to study the sources of asymmetry in the volatility of the bilateral exchange rates of the Moroccan dirham (MAD), against the EUR and the USD using the asymmetric econometric models of the ARCH-GARCH family. An empirical analysis was conducted on daily central bank data from March 2003 to March 2021, with a sample size of 4575 observations. Central bank intervention in the foreign exchange (interbank) market was found to affect the asymmetry in the volatility of the bilateral EUR/MAD and USD/MAD exchange rates. Specifically, sales of foreign exchange reserves by the monetary authority cause a fall in the exchange rate, which means that the market response to shocks is asymmetric. Finally, the selection criterion (AIC) allowed us to conclude that the asymmetric model AR(1)-TGARCH(1,1) is adequate for modeling the volatility of the exchange rate of the Moroccan dirham.

scholarly journals Pengaruh Tingkat Suku Bunga, Inflasi Dan Nilai Kurs Terhadap Harga Saham Perusahaan Perhotelan Yang Terdaftar Di Bursa Efek Indonesia Per Triwulannya Periode 2016-2018

2021 ◽  
Vol 4 (2) ◽  
pp. 871-877
Author(s):  
Rahmat Dewa Bagas Nugraha ◽  
H.M Nursito
Keyword(s):  
Exchange Rate ◽  
Interest Rate ◽  
Exchange Rates ◽  
Interest Rates ◽  
Quantitative Study ◽  
Stock Prices ◽  
Stock Exchange ◽  
Secondary Data ◽  
Ratio Analysis ◽  
The Interest Rate

This study aims to determine and analyze the factors that affect stock prices through appropriate ratio analysis. As for the ratio of interest rates, inflation and exchange rates. Researchers want to know and analyze the effect partially or simultaneously between interest rates, inflation, and exchange rates on stock prices. This research is a quantitative study using secondary data. The object of this research is hotel companies listed on the Indonesia Stock Exchange for the period 2016-2018. The sample used in this study were 3 hotel with certain characteristics. The results of research simultaneously using the F test show that there is no influence between interest rates, inflation and exchange rates on stock prices because the calculated value is smaller than the table. Partially with the t test it can be concluded that there is no influence between interest rates on stock prices because the tcount value in the interest rate variable is smaller than the t table. Likewise, the t calculation of inflation and the exchange rate is smaller than the t table, so that there is no partial effect of the two variables on stock prices. Keywords: Stock Prices, Interest Rates, Inflation and Exchange Rates

scholarly journals External and internal macroeconomic shocks in case of small economy with the currency board

2021 ◽  
Vol 18 (2) ◽  
pp. 39-62
Author(s):  
Jelena Vitomir ◽  
Đorđe Lazić
Keyword(s):  
Exchange Rate ◽  
Central Bank ◽  
Interest Rates ◽  
Real Exchange Rate ◽  
Money Supply ◽  
Unemployment Rate ◽  
Nominal Exchange Rate ◽  
Currency Board ◽  
High Unemployment Rate ◽  
Small Economy

External and internal economic shocks can threaten the macroeconomic stability of a small economy. In the currency board regime, there is no role for the Central Bank as a macroeconomic stabilizer in the event of an external or internal shock. In this paper, the research is based on the analysis of eight countries with small economies with currency boards or discretionary monetary policy. The impact and connections between changes in EURIBOR, interest rates, inflation measured by the GDP deflator, money supply and GDP in the period 1997-2015 are analyzed. The paper proves that in countries with a currency board, whose regimes have a harmonized relationship with the European Central Bank and EURIBOR, interest rate shocks are less pronounced. The analysis of the links between EURIBOR, interest rates, money supply, inflation and GDP is not statistically significant in the "experiment" countries. In the control sample of countries with a variable exchange rate, the situation is heterogeneous for individual countries, but statistical significance has been determined in relation to EURIBOR and inflation. We conclude that EURIBOR may be one of the generators of exogenous shocks. In the case of Bosnia and Herzegovina (B&H), there are much more significant internal transmission mechanisms that lead to macroeconomic imbalances. The growth of deposits was preceded by the growth of loans and money supply. This led to a fall in interest rates which the Central Bank of BiH (CBB&H) could not influence due to the currency board. However, the fall in interest rates did not yield the expected results. GDP has shrunk, inflation is falling, while at the same time the high unemployment rate has remained unchanged. The nominal exchange rate of the domestic currency was determined by law, but there was an appreciation of the real exchange rate, which affected the increase in the foreign trade imbalance. The result of the currency board is price stability, nominal exchange rate stability and money supply growth. Negative results are: appreciation of the real exchange rate, faster growth of imports and maintaining a very high unemployment rate. Macroeconomic developments in the BiH economy do not always have the right course that can be expected in mature economies. The achievements and applicability of standard macroeconomic policies are very limited.

Exchange Rates and the Effectiveness of Actual and Oral Official Interventions: A Survey on Findings, Issues and Policy Implications

2010 ◽  
Vol 10 (4) ◽  
pp. 1850213 ◽  
Author(s):  
Nevin Cavusoglu
Keyword(s):  
Exchange Rate ◽  
Exchange Rates ◽  
Interest Rates ◽  
Policy Implications ◽  
Consistent Finding ◽  
Macroeconomic Variables ◽  
Explanatory Variables ◽  
Monetary Authorities ◽  
Exchange Rate Movements ◽  
Exchange Markets

Monetary authorities of many open economies have been regularly intervening in foreign exchange markets for years to limit volatility in exchange rates and/or push exchange rates back to some desired level. Such interventions have taken the form of actual and oral official interventions. Review of studies investigating the effectiveness of interventions reveals one major issue, related to the assumption that interventions are mostly sterilized. This assumption might lead to unreliable results when changes in interest rates and interventions are both used as explanatory variables for exchange rates. One major consistent finding is that intervention has a significant but short-lasting effect on exchange rates. Studies have reached this conclusion by investigating whether intervention has been effective in turning around the exchange rate over the few days, weeks or months following intervention(s). Only a few studies have investigated and provided evidence that intervention has been effective in limiting long swings in exchange rates. Studies testing for the effectiveness of interventions specifically through the signaling channel also provide evidence on the importance of macroeconomic variables for exchange rates. The significance of official intervention and official communication for exchange rate movements combined with the importance of macroeconomic variables for exchange rates provide a role for official intervention and parity announcement to influence exchange rate movements and limit the magnitude of exchange rate swings.

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