Foreign exchange interventions and monetary policy: evidence from emerging economies
The role of foreign exchange interventions in monetary policy conduct is an ongoing debatable issue, especially in inflation-targeting emerging economies, where monetary authority can follow other targets rather than price stability. This paper examines whether interventions in foreign exchange mark...
| Main Author: | |
|---|---|
| Format: | Article |
| Language: | English |
| Published: |
Sciendo
2024-09-01
|
| Series: | Review of Economic Perspectives |
| Subjects: | |
| Online Access: | https://doi.org/10.2478/revecp-2024-0005 |
| _version_ | 1826982857616130048 |
|---|---|
| author | Bui Trung Thanh |
| author_facet | Bui Trung Thanh |
| author_sort | Bui Trung Thanh |
| collection | DOAJ |
| description | The role of foreign exchange interventions in monetary policy conduct is an ongoing debatable issue, especially in inflation-targeting emerging economies, where monetary authority can follow other targets rather than price stability. This paper examines whether interventions in foreign exchange markets affect the setting of interest rates in countries where price stability is the main target of monetary policy. We used the ARDL model to investigate the matter of the intervention policy as well as its asymmetric impacts on monetary policy. The results provide evidence of the significant effect of foreign exchange interventions on monetary policy in inflation-targeting emerging economies, implying the existence of fear of floating. Particularly, interest rate changes can mitigate or accommodate the intervention policy, depending on countries. Furthermore, the interventions have asymmetric effects on monetary policy, showing the bias toward sales interventions. While sales interventions play a more pronounced effect in most emerging economies, excepting for Mexico where purchase intervention effect is of more importance. |
| first_indexed | 2025-02-18T06:27:26Z |
| format | Article |
| id | doaj.art-dfb51f9cbb8f4c0587a964421c4489b1 |
| institution | Directory Open Access Journal |
| issn | 1804-1663 |
| language | English |
| last_indexed | 2025-02-18T06:27:26Z |
| publishDate | 2024-09-01 |
| publisher | Sciendo |
| record_format | Article |
| series | Review of Economic Perspectives |
| spelling | doaj.art-dfb51f9cbb8f4c0587a964421c4489b12024-11-11T08:38:00ZengSciendoReview of Economic Perspectives1804-16632024-09-01242-3718910.2478/revecp-2024-0005Foreign exchange interventions and monetary policy: evidence from emerging economiesBui Trung Thanh01School of Public Finance, College of Economics, Law and Government, University of Economics Ho Chi Minh City, Telephone: +84 909 608 518The role of foreign exchange interventions in monetary policy conduct is an ongoing debatable issue, especially in inflation-targeting emerging economies, where monetary authority can follow other targets rather than price stability. This paper examines whether interventions in foreign exchange markets affect the setting of interest rates in countries where price stability is the main target of monetary policy. We used the ARDL model to investigate the matter of the intervention policy as well as its asymmetric impacts on monetary policy. The results provide evidence of the significant effect of foreign exchange interventions on monetary policy in inflation-targeting emerging economies, implying the existence of fear of floating. Particularly, interest rate changes can mitigate or accommodate the intervention policy, depending on countries. Furthermore, the interventions have asymmetric effects on monetary policy, showing the bias toward sales interventions. While sales interventions play a more pronounced effect in most emerging economies, excepting for Mexico where purchase intervention effect is of more importance.https://doi.org/10.2478/revecp-2024-0005foreign exchange interventionmonetary policyinterest rateemerging economiesasymmetric effecte4e51e52e58 |
| spellingShingle | Bui Trung Thanh Foreign exchange interventions and monetary policy: evidence from emerging economies Review of Economic Perspectives foreign exchange intervention monetary policy interest rate emerging economies asymmetric effect e4 e51 e52 e58 |
| title | Foreign exchange interventions and monetary policy: evidence from emerging economies |
| title_full | Foreign exchange interventions and monetary policy: evidence from emerging economies |
| title_fullStr | Foreign exchange interventions and monetary policy: evidence from emerging economies |
| title_full_unstemmed | Foreign exchange interventions and monetary policy: evidence from emerging economies |
| title_short | Foreign exchange interventions and monetary policy: evidence from emerging economies |
| title_sort | foreign exchange interventions and monetary policy evidence from emerging economies |
| topic | foreign exchange intervention monetary policy interest rate emerging economies asymmetric effect e4 e51 e52 e58 |
| url | https://doi.org/10.2478/revecp-2024-0005 |
| work_keys_str_mv | AT buitrungthanh foreignexchangeinterventionsandmonetarypolicyevidencefromemergingeconomies |