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Uncovered interest parity with foreign exchange interventions under exchange rate peg and inflation targeting: The case of Ukraine

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  • Anton Grui

    (National Bank of Ukraine)

Abstract

In this study, I modify the uncovered interest parity condition to account for foreign exchange interventions in the context of a small open economy. This is done in a framework of a semistructural New Keynesian model. I examine the case of Ukraine, which de facto transitioned to inflation targeting with a managed float in 2015 after a long period of pegged exchange rate. I simulate model-consistent foreign exchange interventions and use them to quantify the effectiveness of those actually observed. The proposed modification is relevant for inflation targeting regimes with foreign exchange interventions as an additional instrument and those in transition.

Suggested Citation

  • Anton Grui, 2020. "Uncovered interest parity with foreign exchange interventions under exchange rate peg and inflation targeting: The case of Ukraine," IHEID Working Papers 14-2020, Economics Section, The Graduate Institute of International Studies.
    • Handle: RePEc:gii:giihei:heidwp14-2020
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    More about this item

    Keywords

    New Keynesian model; UIP; exchange rate; FX interventions;
    All these keywords.

    JEL classification:

    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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