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A novel approach to the estimation of an actively managed component of foreign exchange reserves

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  • Dąbrowski, Marek A.

Abstract

This paper offers a novel approach to the estimation of an active component of reserves making use of a time-varying coefficient model estimated with Bayesian techniques. The approach substantially extends the time and country coverage of estimates beyond that available under the existing approach. We find that the estimates of an active component for 20 countries over 1995–2017 period are highly correlated with those obtained from the existing approach. The new estimates are cross-checked against the available data on FX market interventions in Argentina, Chile, the Czech Republic, Mexico, Russia and Turkey. We demonstrate that these estimates are a better proxy of FX interventions than simple changes in reserves and are at least as good as the estimates from the existing approach. Our novel approach contributes to a better understanding of changes in FX reserves in many countries, including large reserve holders for which the relevant data are hardly available.

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  • Dąbrowski, Marek A., 2021. "A novel approach to the estimation of an actively managed component of foreign exchange reserves," Economic Modelling, Elsevier, vol. 96(C), pages 83-95.
    • Handle: RePEc:eee:ecmode:v:96:y:2021:i:c:p:83-95
    DOI: 10.1016/j.econmod.2020.12.019
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    More about this item

    Keywords

    Foreign exchange reserves; Foreign exchange interventions; Open economy macroeconomics; Czech National Bank; State space models;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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