Is There Room for Foreign Exchange Interventions Under an Inflation Targeting Framework? Evidence from Mexico and Turkey
The salient characteristics of emerging market economies coupled with the increasing adoption of inflation targeting in these countries has stimulated much debate about the role of the exchange rate in inflation targeting regimes. The authors aim a...
| Main Authors: | , |
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| Format: | Policy Research Working Paper |
| Language: | English en_US |
| Published: |
World Bank, Washington, D.C.
2013
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2004/04/4132260/room-foreign-exchange-interventions-under-inflation-targeting-framework-evidence-mexico-turkey http://hdl.handle.net/10986/14109 |
| Summary: | The salient characteristics of emerging
market economies coupled with the increasing adoption of
inflation targeting in these countries has stimulated much
debate about the role of the exchange rate in inflation
targeting regimes. The authors aim at shedding more light on
this issue by investigating whether central bank foreign
exchange interventions have had any impact on the volatility
of the exchange rate in Mexico and Turkey since the adoption
of the floating regime. To this end, their study, using
daily data on foreign exchange intervention, employs an
Exponential GARCH framework. Empirical results suggest that
both the amount and frequency of foreign exchange
interventions have decreased the volatility of the exchange
rates in these countries. The authors' findings
corroborate the notion that if foreign exchange
interventions are carried out with finesse and sensibly-that
is, not to defend a particular exchange rate-they could play
a useful role in containing the adverse effects of temporary
exchange rate shocks on inflation and financial stability. |
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