Do Sales of Foreign Exchange Reserves Lead to Currency Appreciation?

We employ novel time‐stamped reserve sales data, provided by the Czech National Bank (CNB), to carry out a time‐series analysis of the exchange rate implications of Czech reserve sales aimed at mitigating valuation losses on Euro‐denominated assets. The sales were explicitly not intended to influence the value of the koruna relative to the euro. The period under study includes a well‐defined regime change in the CNB's approach to reserves sales, allowing us to address whether the manner in which the sales are carried out matters for their influence on the relative value of the domestic currency. We find little evidence that reserve sales influence the exchange rate when sales are carried out on a discretionary and relatively infrequent basis. However, when the sales are carried out daily, we find a statistically and economically significant appreciation of the domestic currency follows.     

HOW RELIABLE ARE CYCLICALLY ADJUSTED BUDGET BALANCES IN REAL TIME?

Cyclically adjusted budget balances (CABs) are often used to provide an indication of the structural state of public finances. This paper analyzes the reliability of these figures in real time. In a test of the ability to forecast the “final data,” we find that real‐time CABs are outperformed by a simpler methodology. Furthermore, we find that real‐time CABs have low power in detecting fiscal slippages and in correctly identifying fiscal improvements. Finally, we find that CABs are systematically less reliable under conditions of poor or deteriorating public finances, which means they are at their most unreliable precisely when they are needed most. (JEL H62, H87)