Foreign exchange interventions and interest rate policy in the Czech Republic: Hand in glove? |
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| Affiliation: | 1. Oesterreichische Nationalbank, Austria;2. ECONOMIX, University of Paris X-Nanterre, France;3. William Davidson Institute, United States;4. Czech National Bank, Czech Republic;5. Prague School of Economics, Prague, Czech Republic;1. Oregon State University, 200 Bexell Hall, Corvallis, OR 97331, United States;2. West Chester University, 305 Anderson Hall, West Chester, PA 19383, United States;1. School of Banking and Finance, University of International Business and Economics, Beijing 100029, People''s Republic of China;2. Mailman School of Public Health, Columbia University, New York 10032, United States;3. UQ Business School, University of Queensland, Brisbane QLD 4072, Australia;1. Institute of Public Finance, Smičiklasova 21, 10000 Zagreb, Croatia;2. Vienna Institute for International Economic Studies, Vienna, Austria;1. University of Rijeka, Faculty of Economics, Ivana Filipovića 4, 51000 Rijeka, Croatia;2. University of Zagreb, Faculty of Economics and Business, J.F. Kennedy 6, 10000 Zagreb, Croatia;3. University of Sarajevo, School of Economics and Business, Trg oslobodjenja 1, 71000 Sarajevo, Bosnia and Herzegovina;4. University of Ljubljana, Faculty of Administration, Gosarjeva ulica 5, 1000 Ljubljana, Slovenia;1. Department of Economics, Universität Hamburg and GIGA, Von-Melle-Park 5, D-20146 Hamburg, Germany;2. Department of Economics and Business, Aarhus University, Fuglesangs Allé 4, DK-8210 Aarhus V, Denmark |
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| Abstract: | This paper studies the impact of daily official FX interventions on the Czech koruna's exchange rate vis-à-vis the euro (the German mark) from 1997 to 2002. Both the event study methodology extended with official interest rate moves and a variety of GARCH models reveal that FX interventions, especially koruna purchases, were relatively ineffective from 1997 to mid-1998. From mid-1998 to 2002, however, koruna sales turned out to be effective in smoothing the path of the exchange rate for up to 60 days. Nevertheless, the event study approach also indicates that the success of FX interventions depends crucially on the coordination of intervention and interest rate policies. |
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