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Central Bank Intervention and Exchange Rate Volatility in the Inflation-Targeting Regime

Author

Listed:
  • Haryo Kuncoro

    (Faculty of Economics, State University of Jakarta, Indonesia)

  • Caroline Geetha

    (Faculty of Economics, Business, and Accountancy, University Malaysia Sabah, Malaysia)

  • Fafurida Fafurida

    (Faculty of Economics, State University of Semarang, Indonesia)

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.

Suggested Citation

  • Haryo Kuncoro & Caroline Geetha & Fafurida Fafurida, 2024. "Central Bank Intervention and Exchange Rate Volatility in the Inflation-Targeting Regime," Economic Research Guardian, Mutascu Publishing, vol. 14(1), pages 2-15, June.
    • Handle: RePEc:wei:journl:v:14:y:2024:i:1:p:2-15
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Foreign reserves; Central bank intervention; Exchange rate volatility; Quantile regression;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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