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...

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Main Authors:	Domaç, Ilker, Mendoza, Alfonso
Format:	Policy Research Working Paper
Language:	English en_US
Published:	World Bank, Washington, D.C. 2013
Subjects:	EMERGING MARKET ECONOMIES INFLATION CENTRAL BANKS FOREIGN EXCHANGE FLOATING EXCHANGE RATES EXCHANGE RATE REGIMES FINANCIAL STABILITY ADVERSE EFFECTS BALANCE OF PAYMENTS BANCO DE MEXICO BONDS CAPITAL ACCOUNT CAPITAL FLIGHT CENTRAL BANK DEBT ECONOMIC REFORM EMPIRICAL STUDIES EXCESS DEMAND EXCHANGE MARKET INTERVENTION EXCHANGE RATE EXCHANGE RATE POLICY EXCHANGE RATES EXOGENOUS SHOCKS EXOGENOUS VARIABLES FINANCIAL CRISIS FINANCIAL STABILITY FLOATING EXCHANGE RATE FLOATING EXCHANGE RATE REGIME FOREIGN CURRENCY FOREIGN EXCHANGE INTERVENTION FOREIGN EXCHANGE INTERVENTIONS FOREIGN EXCHANGE MARKET FOREIGN EXCHANGE MARKETS FOREIGN EXCHANGE RATE FOREIGN EXCHANGE RATES FOREIGN EXCHANGE RESERVES FOREIGN EXCHANGE SALES FOREIGN EXCHANGE SWAPS FOREIGN INTEREST RATES FOREIGN MARKET HIGH VOLATILITY IMPERFECT SUBSTITUTES INDUSTRIAL COUNTRIES INFLATION RATE INFLATION TARGETING INFLATION TARGETS INTEREST RATE INTEREST RATES INTERNATIONAL MARKETS INTERNATIONAL RESERVES LIQUIDITY LIQUIDITY MANAGEMENT LOCAL CURRENCY LONG RUN MARKET CONDITIONS MARKET ECONOMIES MAXIMUM LIKELIHOOD METHOD MEXICAN PESO MONETARY AGGREGATES MONETARY AUTHORITIES MONETARY POLICY MONETARY POLICY FRAMEWORK MONEY MARKET NOMINAL ANCHOR OUTPUT PESOS POLICY RESEARCH PORTFOLIO PRICE STABILITY RANDOM WALK RATE OF INFLATION RISK PREMIUM SECURITIES STABILIZATION TRANSMISSION MECHANISM TREASURY YEN
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

id	okr-10986-14109
recordtype	oai_dc
spelling	okr-10986-141092021-04-23T14:03:20Z Is There Room for Foreign Exchange Interventions Under an Inflation Targeting Framework? Evidence from Mexico and Turkey Domaç, Ilker Mendoza, Alfonso EMERGING MARKET ECONOMIES INFLATION CENTRAL BANKS FOREIGN EXCHANGE FLOATING EXCHANGE RATES EXCHANGE RATE REGIMES FINANCIAL STABILITY ADVERSE EFFECTS BALANCE OF PAYMENTS BANCO DE MEXICO BONDS CAPITAL ACCOUNT CAPITAL FLIGHT CENTRAL BANK CENTRAL BANKS DEBT ECONOMIC REFORM EMPIRICAL STUDIES EXCESS DEMAND EXCHANGE MARKET INTERVENTION EXCHANGE RATE EXCHANGE RATE POLICY EXCHANGE RATES EXOGENOUS SHOCKS EXOGENOUS VARIABLES FINANCIAL CRISIS FINANCIAL STABILITY FLOATING EXCHANGE RATE FLOATING EXCHANGE RATE REGIME FOREIGN CURRENCY FOREIGN EXCHANGE FOREIGN EXCHANGE INTERVENTION FOREIGN EXCHANGE INTERVENTIONS FOREIGN EXCHANGE MARKET FOREIGN EXCHANGE MARKETS FOREIGN EXCHANGE RATE FOREIGN EXCHANGE RATES FOREIGN EXCHANGE RESERVES FOREIGN EXCHANGE SALES FOREIGN EXCHANGE SWAPS FOREIGN INTEREST RATES FOREIGN MARKET HIGH VOLATILITY IMPERFECT SUBSTITUTES INDUSTRIAL COUNTRIES INFLATION RATE INFLATION TARGETING INFLATION TARGETS INTEREST RATE INTEREST RATES INTERNATIONAL MARKETS INTERNATIONAL RESERVES LIQUIDITY LIQUIDITY MANAGEMENT LOCAL CURRENCY LONG RUN MARKET CONDITIONS MARKET ECONOMIES MAXIMUM LIKELIHOOD METHOD MEXICAN PESO MONETARY AGGREGATES MONETARY AUTHORITIES MONETARY POLICY MONETARY POLICY FRAMEWORK MONEY MARKET NOMINAL ANCHOR OUTPUT PESOS POLICY RESEARCH PORTFOLIO PRICE STABILITY RANDOM WALK RATE OF INFLATION RISK PREMIUM SECURITIES STABILIZATION TRANSMISSION MECHANISM TREASURY YEN 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. 2013-06-21T15:30:29Z 2013-06-21T15:30:29Z 2004-04 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 English en_US Policy Research Working Paper;No.3288 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank World Bank, Washington, D.C. Publications & Research :: Policy Research Working Paper Publications & Research Europe and Central Asia Latin America & Caribbean
repository_type	Digital Repository
institution_category	Foreign Institution
institution	Digital Repositories
building	World Bank Open Knowledge Repository
collection	World Bank
language	English en_US
topic	EMERGING MARKET ECONOMIES INFLATION CENTRAL BANKS FOREIGN EXCHANGE FLOATING EXCHANGE RATES EXCHANGE RATE REGIMES FINANCIAL STABILITY ADVERSE EFFECTS BALANCE OF PAYMENTS BANCO DE MEXICO BONDS CAPITAL ACCOUNT CAPITAL FLIGHT CENTRAL BANK CENTRAL BANKS DEBT ECONOMIC REFORM EMPIRICAL STUDIES EXCESS DEMAND EXCHANGE MARKET INTERVENTION EXCHANGE RATE EXCHANGE RATE POLICY EXCHANGE RATES EXOGENOUS SHOCKS EXOGENOUS VARIABLES FINANCIAL CRISIS FINANCIAL STABILITY FLOATING EXCHANGE RATE FLOATING EXCHANGE RATE REGIME FOREIGN CURRENCY FOREIGN EXCHANGE FOREIGN EXCHANGE INTERVENTION FOREIGN EXCHANGE INTERVENTIONS FOREIGN EXCHANGE MARKET FOREIGN EXCHANGE MARKETS FOREIGN EXCHANGE RATE FOREIGN EXCHANGE RATES FOREIGN EXCHANGE RESERVES FOREIGN EXCHANGE SALES FOREIGN EXCHANGE SWAPS FOREIGN INTEREST RATES FOREIGN MARKET HIGH VOLATILITY IMPERFECT SUBSTITUTES INDUSTRIAL COUNTRIES INFLATION RATE INFLATION TARGETING INFLATION TARGETS INTEREST RATE INTEREST RATES INTERNATIONAL MARKETS INTERNATIONAL RESERVES LIQUIDITY LIQUIDITY MANAGEMENT LOCAL CURRENCY LONG RUN MARKET CONDITIONS MARKET ECONOMIES MAXIMUM LIKELIHOOD METHOD MEXICAN PESO MONETARY AGGREGATES MONETARY AUTHORITIES MONETARY POLICY MONETARY POLICY FRAMEWORK MONEY MARKET NOMINAL ANCHOR OUTPUT PESOS POLICY RESEARCH PORTFOLIO PRICE STABILITY RANDOM WALK RATE OF INFLATION RISK PREMIUM SECURITIES STABILIZATION TRANSMISSION MECHANISM TREASURY YEN
spellingShingle	EMERGING MARKET ECONOMIES INFLATION CENTRAL BANKS FOREIGN EXCHANGE FLOATING EXCHANGE RATES EXCHANGE RATE REGIMES FINANCIAL STABILITY ADVERSE EFFECTS BALANCE OF PAYMENTS BANCO DE MEXICO BONDS CAPITAL ACCOUNT CAPITAL FLIGHT CENTRAL BANK CENTRAL BANKS DEBT ECONOMIC REFORM EMPIRICAL STUDIES EXCESS DEMAND EXCHANGE MARKET INTERVENTION EXCHANGE RATE EXCHANGE RATE POLICY EXCHANGE RATES EXOGENOUS SHOCKS EXOGENOUS VARIABLES FINANCIAL CRISIS FINANCIAL STABILITY FLOATING EXCHANGE RATE FLOATING EXCHANGE RATE REGIME FOREIGN CURRENCY FOREIGN EXCHANGE FOREIGN EXCHANGE INTERVENTION FOREIGN EXCHANGE INTERVENTIONS FOREIGN EXCHANGE MARKET FOREIGN EXCHANGE MARKETS FOREIGN EXCHANGE RATE FOREIGN EXCHANGE RATES FOREIGN EXCHANGE RESERVES FOREIGN EXCHANGE SALES FOREIGN EXCHANGE SWAPS FOREIGN INTEREST RATES FOREIGN MARKET HIGH VOLATILITY IMPERFECT SUBSTITUTES INDUSTRIAL COUNTRIES INFLATION RATE INFLATION TARGETING INFLATION TARGETS INTEREST RATE INTEREST RATES INTERNATIONAL MARKETS INTERNATIONAL RESERVES LIQUIDITY LIQUIDITY MANAGEMENT LOCAL CURRENCY LONG RUN MARKET CONDITIONS MARKET ECONOMIES MAXIMUM LIKELIHOOD METHOD MEXICAN PESO MONETARY AGGREGATES MONETARY AUTHORITIES MONETARY POLICY MONETARY POLICY FRAMEWORK MONEY MARKET NOMINAL ANCHOR OUTPUT PESOS POLICY RESEARCH PORTFOLIO PRICE STABILITY RANDOM WALK RATE OF INFLATION RISK PREMIUM SECURITIES STABILIZATION TRANSMISSION MECHANISM TREASURY YEN Domaç, Ilker Mendoza, Alfonso Is There Room for Foreign Exchange Interventions Under an Inflation Targeting Framework? Evidence from Mexico and Turkey
geographic_facet	Europe and Central Asia Latin America & Caribbean
relation	Policy Research Working Paper;No.3288
description	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.
format	Publications & Research :: Policy Research Working Paper
author	Domaç, Ilker Mendoza, Alfonso
author_facet	Domaç, Ilker Mendoza, Alfonso
author_sort	Domaç, Ilker
title	Is There Room for Foreign Exchange Interventions Under an Inflation Targeting Framework? Evidence from Mexico and Turkey
title_short	Is There Room for Foreign Exchange Interventions Under an Inflation Targeting Framework? Evidence from Mexico and Turkey
title_full	Is There Room for Foreign Exchange Interventions Under an Inflation Targeting Framework? Evidence from Mexico and Turkey
title_fullStr	Is There Room for Foreign Exchange Interventions Under an Inflation Targeting Framework? Evidence from Mexico and Turkey
title_full_unstemmed	Is There Room for Foreign Exchange Interventions Under an Inflation Targeting Framework? Evidence from Mexico and Turkey
title_sort	is there room for foreign exchange interventions under an inflation targeting framework? evidence from mexico and turkey
publisher	World Bank, Washington, D.C.
publishDate	2013
url	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
_version_	1764430212151377920

Is There Room for Foreign Exchange Interventions Under an Inflation Targeting Framework? Evidence from Mexico and Turkey

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