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Capital Inflows and Efficiency of Sterilisation – Estimation of Sterilisation and Offset Coefficients

Author

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  • Igor Ljubaj

    (The Croatian National Bank, Croatia)

  • Ana Martinis

    (The Croatian National Bank, Croatia)

  • Marko Mrkalj

Abstract

This paper aims to explore to what degree the Croatian National Bank (the CNB) sterilised capital inflows in the period from 2000 to 2009 by estimating a sterilisation coefficient, and to explore to what degree the central bank’s activities in the domestic market spurred additional capital inflows by estimating an offset coefficient. The sterilisation coefficient was estimated through the estimation of the monetary policy reaction function, while the capital-flow equation was used to estimate the offset coefficient. Econometric estimation (2SLS) was used to find the relevant explanatory variables that enabled the estimation of the mentioned coefficients. According to the estimated coefficients it may be concluded that during the period under review the CNB was conducting a policy of strong, but not full sterilisation of foreign inflows. However, by using monetary policy instruments the CNB, to some degree, also indirectly contributed to additional capital inflows. Nevertheless, estimated coefficients indicate that despite the liberalisation of capital flows and their continued strengthening, the central bank managed to preserve the relatively high autonomy and efficiency of its sterilisation policy.

Suggested Citation

  • Igor Ljubaj & Ana Martinis & Marko Mrkalj, 2010. "Capital Inflows and Efficiency of Sterilisation – Estimation of Sterilisation and Offset Coefficients," Working Papers 24, The Croatian National Bank, Croatia.
    • Handle: RePEc:hnb:wpaper:24
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    References listed on IDEAS

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    Cited by:

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    2. Rong Li & Dongzhou Mei & Bing Tong, 2024. "Gradual Portfolio Adjustment, Foreign Exchange Intervention, and Open Market Operations," CFDS Discussion Paper Series 2024/6, Center for Financial Development and Stability at Henan University, Kaifeng, Henan, China.
    3. Maja Bukovšak & Gorana Lukinić Čardić & Nina Ranilović, 2017. "Structure of Capital Flows and Exchange Rate: The Case of Croatia," Working Papers 52, The Croatian National Bank, Croatia.
    4. Djedaiet Aissa & Ayad Hicham, 2022. "Hard currency inflows and sterilization policy in Algeria," SN Business & Economics, Springer, vol. 2(9), pages 1-16, September.
    5. Buffie, Edward F. & Airaudo, M. & Zanna, Felipe, 2018. "Inflation targeting and exchange rate management in less developed countries," Journal of International Money and Finance, Elsevier, vol. 81(C), pages 159-184.

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    More about this item

    Keywords

    sterilisation coefficient; offset coefficient; capital inflows;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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