Is Central Bank Intervention Effective Under Inflation Targeting Regimes? The Case of Colombia

WPIEA2008088 Image
Price:  $18.00

Author/Editor: Herman Kamil
Release Date: © April, 2008
ISBN : 978-1-45186-949-1
Stock #: WPIEA2008088
English
Stock Status: Available

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Description

Policymakers in many emerging markets are attempting to resist currency appreciation while simultaneously meeting targets for inflation. Using the recent experience of Colombia between 2004 and 2007, this paper examines the effectiveness of the Central Bank's intervention in stemming domestic currency appreciation under an inflation targeting regime. The results indicate that exchange rate intervention was effective during 2004-2006, when foreign currency purchases were undertaken during a period of monetary easing. During 2007, on the other hand, intervention was ineffective in reversing or slowing down domestic currency appreciation, as large-scale intervention became incompatible with meeting the inflation target in an overheating economy. Currency derivative markets-which have grown in depth and sophistication-played a key role in blunting the effectiveness of intervention.

Taxonomy

Banks and banking , Central banks , Financial institutions and markets




More publications in this series: Working Papers


More publications by: Herman Kamil