Implicit Asymmetric Exchange Rate Intervention under Inflation Targeting Regimes

Date

2016-09-10

Author

Benlialper, Ahmet
Cömert, Hasan
Öcal, Nadir

Metadata

Show full item record

Item Usage Stats

131
views

0
downloads

In the last decades, many developing countries abandoned their existing policy regimes and adopted inflation targeting (IT) by which they aimed to control inflation through the use of policy interest rates. During the period before the crisis, most of these countries experienced large appreciations in their currencies. Given that appreciation helps central banks to curb inflationary pressures, we ask whether central banks in developing countries have a different policy stance with respect to depreciation and appreciation. We specifically claim that during the period under investigation (2002-2008), central banks in developing countries which implement IT have tolerated appreciation but fought against depreciation in order to hit their inflation targets. In order to support our claim, we analyze two components of central bank’s response to exchange rate movements. First, we analyze central banks’ interest rate decisions by estimating a non-linear monetary policy reaction function using a panel threshold model. Evidence suggests that whereas central banks respond to depreciation pressures, they remain inactive to appreciation. Secondly, we construct a probit model in order to investigate the determinants of foreign exchange intervention of central banks. We find that depreciation has an explanatory power for sale interventions whereas appreciation does not explain purchase interventions. Hence, we conclude that central banks’ policy stance in IT developing countries with respect to exchange rate movements is asymmetric favoring appreciation. In this sense, IT seems to contribute to the ignorance of dangers regarding to financial flows leading to appreciation of currencies in developing countries.

Subject Keywords

Inflation Targeting, Central Banking, Developing Countries, Exchange Rates

URI

https://hdl.handle.net/11511/71472
https://ideas.repec.org/p/eyd/cp2015/257.html
https://econpapers.repec.org/paper/eydcp2015/257.htm

Conference Name

EY International Congress on Economics II (EYC2015),( November 5-6, 2015)

Collections

Department of Economics, Conference / Seminar

Suggestions

OpenMETU
Core

Implicit asymmetric exchange rate peg under inflation targeting regimes: the case of Turkey Benlialper, Ahmet; Cömert, Hasan (2016-11-01) Especially after the 2000s, many developing countries let exchange rates float and began implementing inflation targeting (IT) regimes based on mainly manipulation of expectations and aggregate demand. However, most developing countries implementing IT regimes experienced considerable appreciation trends in their currencies. Might have exchange rates been utilised as implicit tools even under IT regimes in developing countries? To answer this question and investigate the determinants of inflation under an I...
Implicit asymmetric exchange rate peg under inflation targeting regimes the case of Turkey Benlialper, Ahmet; Cömert, Hasan (null; 2013-06-29) Especially, after the 2000s, many developing countries let exchange rates float and began implementing inflation targeting regimes based on mainly manipulation of expectations and aggregate demand. However, most developing countries implementing inflation targeting regimes experienced considerable appreciation trends in their currencies. Might have exchange rates been utilized as implicit tools even under inflation targeting regimes in developing countries? To answer this question and investigate the determ...
Asymmetric exchange rate intervention under inflation targeting regimes : the case of Turkey, 2002-2008 Benlialper, Ahmet; Cömert, Hasan; Department of Economics (2013) Especially, after the 2000s, many developing countries let exchange rates float and began implementing inflation targeting regimes based on mainly manipulation of expectations and aggregate demand. However, most developing countries implementing inflation targeting regimes experienced considerable appreciation trends in their currencies. Might have exchange rates been utilized as implicit tools even under inflation targeting regimes in developing countries? To answer this question and investigate the determ...
External financial liberalization in developing countries: some adverse consequences Boratav, Korkut (Orta Doğu Teknik Üniversitesi (Ankara, Turkey), 1993) Liberalization of capital movements under a high inflation regime in a developing country would most likely lead to an uncontrolled growth of the external growth of the external debt. Adverse consequences on either the rate of investment or on the trade balance are likely to follow as well. These results are valid as long as developing countries face higher rates of inflation and larger margins between loan and deposit interest rates than those observed in capitalist metropoles. Under these conditions, exch...
Exchange rate pass-through into domestic price indicators: a sectoral analysis of Turkish economy Özen, Emine Özgü; Akbostancı Özkazanç, Elif; Department of Economics (2011) The question of exchange rate pass-through into domestic inflation is a widely analyzed issue due to its importance as regards to monetary policy, exchange rate policy and in general macroeconomic policy for open economies. Although most of the literature is focused on the exchange rate pass-through at the aggregate level, there are fewer studies that are done at the sectoral level for the Turkish economy. In this study by using a distribution chain of pricing model developed by McCarthy (2000), pass-throug...

Citation Formats

A. Benlialper, H. Cömert, and N. Öcal, “Implicit Asymmetric Exchange Rate Intervention under Inflation Targeting Regimes,” presented at the EY International Congress on Economics II (EYC2015),( November 5-6, 2015), Ankara, Türkiye, 2016, Accessed: 00, 2021. [Online]. Available: https://hdl.handle.net/11511/71472.