Download or read book Market Information and Signaling in Central Bank Operations or How Often Should a Central Bank Intervene written by International Monetary Fund and published by International Monetary Fund. This book was released on 1997-03-01 with total page 29 pages. Available in PDF, EPUB and Kindle. Book excerpt: A central bank must decide on the frequency with which it will conduct open market operations and the variability in short-term money market that it will allow. It is shown how the optimal operating procedure balances the value of attaining an immediate target and broadcasting the central bank’s intentions against the informational advantages to the central bank of allowing the free play of market forces to reveal more of the information available to market participants.
Download or read book The Federal Reserve System Purposes and Functions written by Board of Governors of the Federal Reserve System and published by . This book was released on 2002 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: Provides an in-depth overview of the Federal Reserve System, including information about monetary policy and the economy, the Federal Reserve in the international sphere, supervision and regulation, consumer and community affairs and services offered by Reserve Banks. Contains several appendixes, including a brief explanation of Federal Reserve regulations, a glossary of terms, and a list of additional publications.
Download or read book Informational Efficiency Interest Rate Variability and Central Bank Operations written by International Monetary Fund and published by International Monetary Fund. This book was released on 1997-03-01 with total page 27 pages. Available in PDF, EPUB and Kindle. Book excerpt: It is shown how the frequency of central bank intervention in financial markets can affect the incentives for economic agents to acquire information, which will be reflected in market prices and thus become available to policy makers. The optimal frequency of intervention, and therefore the optimal interest rate variability, will balance the desirability of attaining given operational targets against the benefits of encouraging informational efficiency. The ability of the central bank to send clear signals of its own intentions will also depend on market informational efficiency.
Download or read book Market Responses to Coordinated Central Bank Intervention written by Kathryn M. Dominguez and published by . This book was released on 1989 with total page 66 pages. Available in PDF, EPUB and Kindle. Book excerpt: The scale of unilateral and coordinated intervention in the foreign exchange market by the G-5 countries has become considerably larger over the last few years, following a period in which official U.S. policy was opposed to intervention. This paper examines market responses to official sterilized central bank intervention policy over the period 1985 through 1987. The efficacy of sterilized intervention is hypothesized to depend on the market's belief that central banks both have "inside" information about future monetary policy and the incentive to reveal that information truthfully through intervention signals. Central banks may agree to coordinate their intervention operations in order to influence the market's perception of the relative importance and credibility of own signals. Market responses to intervention over the period 1985 through 1987 are examined econometrically using heretofore unavailable daily data on G-3 unilateral and coordinated intervention operations. The empirical evidence indicates that: (1) even though daily intervention data are not published, market participants were generally able to comtemporaneously observe the source and magnitude of central bank intervention operations, (2) unilateral intervention significantly influenced market expectations in some periods, and (3) coordinated intervention had a significantly different and longer-term influence on market expectations than did unilateral intervention over the three year period examined.
Download or read book Transparency in Central Bank Operations in the Foreign Exchange Market written by Mr.Charles Enoch and published by International Monetary Fund. This book was released on 1998-03-01 with total page 24 pages. Available in PDF, EPUB and Kindle. Book excerpt: Transparency in the economic sphere involves making public sector action visible and understandable to the private sector. Transparency in central bank operations can be seen a complement to the greater transparency being established in policy formulation. Among the most important areas in this regard and the central bank’s operations in the foreign exchange market. This paper looks at the respective roles of overt and covert foreign exchange market operations, and considers that each may be appropriate under particular conditions. Reconciling covert operations with transparency requires rules for full disclosure with as short a lag as possible.
Download or read book Central Bank Participation in Currency Options Markets written by Mr.Peter Breuer and published by International Monetary Fund. This book was released on 1999-10-01 with total page 41 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper analyzes whether and how central banks can use currency options to lower exchange rate volatility and maintain (implicit) target zones in foreign exchange markets. It argues that selling rather than buying options will result in market makers dynamically hedging their long option exposure in a stabilizing manner, consistent with the first objective. Selling a “strangle” allows a central bank to increase the credibility of its commitment to a target zone, and could have a lower expected cost than spot market interventions. However, this strategy also exposes the central bank to an unlimited loss potential.
Download or read book Central Bank Emergency Support to Securities Markets written by Darryl King and published by International Monetary Fund. This book was released on 2017-07-10 with total page 50 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper considers the central bank mandate with respect to financial stability and identifies the links to the functioning of securities markets. It argues that while emergency support to securities markets is an important part of the crisis management response, a high bar should be set for its use. Importantly, it should be used only as part of a comprehensive policy package. The paper considers what types of securities markets may be important for financial stability, what market conditions could trigger emergency support measures, and how programs can be designed to restore market functioning while minimizing moral hazard.
Download or read book Foreign Exchange Intervention Rules for Central Banks A Risk based Framework written by Romain Lafarguette and published by International Monetary Fund. This book was released on 2021-02-12 with total page 33 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper presents a rule for foreign exchange interventions (FXI), designed to preserve financial stability in floating exchange rate arrangements. The FXI rule addresses a market failure: the absence of hedging solution for tail exchange rate risk in the market (i.e. high volatility). Market impairment or overshoot of exchange rate between two equilibria could generate high volatility and threaten financial stability due to unhedged exposure to exchange rate risk in the economy. The rule uses the concept of Value at Risk (VaR) to define FXI triggers. While it provides to the market a hedge against tail risk, the rule allows the exchange rate to smoothly adjust to new equilibria. In addition, the rule is budget neutral over the medium term, encourages a prudent risk management in the market, and is more resilient to speculative attacks than other rules, such as fixed-volatility rules. The empirical methodology is backtested on Banco Mexico’s FXIs data between 2008 and 2016.
Download or read book Central Bank Balances and Reserve Requirements written by Mr.Simon Gray and published by International Monetary Fund. This book was released on 2011-02-01 with total page 57 pages. Available in PDF, EPUB and Kindle. Book excerpt: Most central banks oblige depository institutions to hold minimum reserves against their liabilities, predominantly in the form of balances at the central bank. The role of these reserve requirements has evolved significantly over time. The overlay of changing purposes and practices has the result that it is not always fully clear what the current purpose of reserve requirements is, and this necessarily complicates thinking about how a reserve regime should be structured. This paper describes three main purposes for reserve requirements - prudential, monetary control and liquidity management - and suggests best practice for the structure of a reserves regime. Finally, the paper illustrates current practices using a 2010 IMF survey of 121 central banks.
Download or read book The Effectiveness of Central bank Intervention written by Hali J. Edison and published by . This book was released on 1993 with total page 76 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Monetary Policy Operations and the Financial System written by Ulrich Bindseil and published by Oxford University Press, USA. This book was released on 2014 with total page 337 pages. Available in PDF, EPUB and Kindle. Book excerpt: An introduction to the way that central banks implement monetary policy through market operations. It explains monetary policy operations in normal times, reviews the basic mechanics of financial crises, and explains what central banks need to do to fulfil their monetary policy and financial stability mandates when markets and banks are impaired.
Download or read book Foreign Exchange Intervention as a Monetary Policy Instrument written by Felix Hüfner and published by Springer Science & Business Media. This book was released on 2012-12-06 with total page 180 pages. Available in PDF, EPUB and Kindle. Book excerpt: Foreign exchange intervention is frequently being used by central banks in countries which have a floating exchange rate. Most theoretical monetary policy models, however, do not take this phenomenon into account. This book contributes to close this gap between theory and practice by interpreting foreign exchange intervention as an additional monetary policy instrument for inflation targeting central banks. In-depth empirical analyses of the foreign exchange operations and interest rate policy of five inflation targeting countries (Australia, Canada, New Zealand, Sweden and the United Kingdom) demonstrate how foreign exchange intervention is used in practice.
Download or read book The Market Microstructure of Central Bank Intervention written by Kathryn M. Dominguez and published by . This book was released on 1999 with total page 56 pages. Available in PDF, EPUB and Kindle. Book excerpt: One of the great unknowns in international finance is the process by which new information influences exchange rate behavior. This paper focuses on one important source of information to the foreign exchange markets, the intervention operations of the G-3 central banks. Previous studies using daily and weekly foreign exchange rate data suggest that central bank intervention operations can influence both the level and variance of exchange rates, but little is known about how exactly traders learn of these operations and whether intra-daily market conditions influence the effectiveness of central bank interventions. This paper uses high-frequency data to examine the relationship between the efficacy of intervention operations and the 'state of the market' at the moment that the operation is made public to traders. The results indicate that some traders know that a central bank is intervening at least one hour prior to the public release of the information in newswire reports. Also, the evidence suggests that the timing of intervention operations matter interventions that occur during heavy trading volume and that are closely timed to scheduled macro announcements are the most likely to have large effects. Finally, post-intervention mean reversion in both exchange rate returns and volatility indicate that dealer inventories are affected by market reactions to intervention news.
Download or read book How to Move the Exchange Rate If You Must written by Kaushik Basu and published by . This book was released on 2017 with total page 27 pages. Available in PDF, EPUB and Kindle. Book excerpt: The paper is about the art of exchange rate management by central banks. It begins by reviewing the diversity of objectives and practices of central bank intervention in the foreign exchange market. Central banks typically exercise discretion in determining when and to what extent to intervene. Some central banks use publicly declared rules of intervention, with the aim of increasing visibility and strengthening the signaling channel of policy. There is tentative evidence that the volatility of foreign exchange reserves is comparatively lower in emerging market economies where central banks follow some form of rules-based foreign exchange intervention. The paper goes on to argue that when the foreign exchange market includes some large strategic participants, the central bank can achieve superior outcomes if intervention takes the form of a rule, or "schedule," indicating commitments to buying and selling different quantities of foreign currency conditional on the exchange rate. Exchange rate management and reserve management can then be treated as two independent objectives by the central bank. In line with the stylized facts reviewed, this would enable a central bank to pursue exchange rate objectives with minimum reserve changes, or achieve reserve targets with minimum impact on the exchange rate.
Download or read book Strained Relations written by Michael D. Bordo and published by University of Chicago Press. This book was released on 2015-03-02 with total page 453 pages. Available in PDF, EPUB and Kindle. Book excerpt: During the twentieth century, foreign-exchange intervention was sometimes used in an attempt to solve the fundamental trilemma of international finance, which holds that countries cannot simultaneously pursue independent monetary policies, stabilize their exchange rates, and benefit from free cross-border financial flows. Drawing on a trove of previously confidential data, Strained Relations reveals the evolution of US policy regarding currency market intervention, and its interaction with monetary policy. The authors consider how foreign-exchange intervention was affected by changing economic and institutional circumstances—most notably the abandonment of the international gold standard—and how political and bureaucratic factors affected this aspect of public policy.
Download or read book When Do Central Bank Interventions Influence Intra daily and Longer term Exchange Rate Movements written by Kathryn M. Dominguez and published by . This book was released on 2003 with total page 58 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines dollar interventions by the G3 governments since 1989, and the reasons that trader reactions to these interventions might differ over time and across central banks. Market microstructure theory provides a framework for understanding the process by which sterilized central bank interventions are observed and interpreted by traders, and how this process, in turn, might influence exchange rates. Using intra-daily and daily exchange rate and intervention data, the paper analyzes the influence of interventions on exchange rate volatility, finding evidence of both within day and daily impact effects, but little evidence that interventions increase longer-term volatility.
Download or read book Identifying the Efficacy of Central Bank Interventions written by Jonathan Kearns and published by . This book was released on 2002 with total page 48 pages. Available in PDF, EPUB and Kindle. Book excerpt: The endogeneity of exchange rates and intervention has long plagued studies of the effectiveness of central banks actions in foreign exchange markets. Researchers have either excluded contemporaneous intervention, so that their explanators are predetermined, or obtained a small, and typically incorrectly signed, coefficient on contemporaneous intervention. Failing to account for the endogeneity, when central banks lean against the wind and trade strategically, will likely result in a large downward bias to the coefficient on contemporaneous intervention -- explaining the negative coefficient frequently obtained. We use an alternative identification assumption, a change in Reserve Bank of Australia intervention policy, that allows us to estimate, using simulated GMM, a model that includes the contemporaneous impact of intervention. There are three main results. Our point estimates suggest that central bank intervention has a economically significant contemporaneous effect. A $US100m purchase of the domestic currency will appreciate the exchange rate by 1.35 to 1.81 per cent. This estimate is remarkably similar to the calibration conducted by Dominguez and Frankel (1993), who themselves noted their estimate was larger than previous empirical findings. Secondly, the vast majority of the effect of an intervention on the exchange rate is found to occur during the day in which it is conducted, with only a smaller impact on subsequent days. Finally, we confirm findings that Australian central bank intervention policy can be characterized by leaning aginst the wind.
