Central bank intervention and exchange rate volatility in the inflation-targeting regime

Haryo Kuncoro and Caroline Geetha and Fafurida Fafurida (2024) Central bank intervention and exchange rate volatility in the inflation-targeting regime. The Economic Research Guardian, 14 (1). pp. 1-14. ISSN 2247-8531

Text FULL TEXT.pdf Restricted to Registered users only Download (739kB) | Request a copy

Abstract

This paper examines the impact of central bank intervention on the exchange rate fluctuations within the framework of inflation-targeting. Focusing on Indonesia, the Philippines, and Thailand from 2005(7) to 2022(12), empirical analysis using quantile regression demonstrates that the central bank intervention mitigates real exchange rate volatility. However, there is a discernible upward linear trend in the coefficient related to market intervention. While overall behavior tends to be symmetrical, selling intervention and interventions during depreciation periods differently affect real exchange rate volatility across quantiles. Those results underline the importance for monetary authorities to consider shifts in exchange rate expectations over the medium term. Accordingly, the selective implementation of market intervention, tailored to the dynamics of real exchange rate volatility, is essential for upholding the credibility of inflation-targeting monetary policy.

Item Type:	Article
Keyword:	Foreign reserves, Central bank intervention, Exchange rate volatility, Quantile regression
Subjects:	H Social Sciences > HG Finance > HG1-9999 Finance > HG1501-3550 Banking > HG1811-2351 Special classes of banks and financial institutions H Social Sciences > HG Finance > HG1-9999 Finance > HG3810-4000 Foreign exchange. International finance. International monetary system
Department:	FACULTY > Faculty of Business, Economics and Accounting
Depositing User:	ABDULLAH BIN SABUDIN -
Date Deposited:	19 Mar 2025 14:09
Last Modified:	19 Mar 2025 14:09
URI:	https://eprints.ums.edu.my/id/eprint/43255

Actions (login required)

View Item