The Effectiveness of Foreign Exchange Intervention in Emerging Market Countries: Evidence from the Czech Koruna

20 Pages Posted: 20 Sep 2007

See all articles by Gabriele Galati

Gabriele Galati

De Nederlandsche Bank

Piti Disyatat

Puey Ungphakorn Institute for Economic Research, Bank of Thailand

Abstract

We survey the literature on the efficacy of foreign exchange market intervention in emerging market countries, emphasising the differences with the literature on industrial countries. We then use official statistics on central bank intervention by the Czech National Bank in conjunction with options market data, to study the impact of intervention during 2001-02. We find that central bank intervention had some (weakly) statistically significant impact on the spot rate and the risk reversal but that this impact was small. We do not find evidence that intervention had an influence on short-term exchange rate volatility. We also find that, in our sample period, Czech authorities appeared to intervene mainly in response to an acceleration of the speed of koruna appreciation.

Keywords: foreign exchange, central banks and their policies

JEL Classification: F31, E58

Suggested Citation

Galati, Gabriele and Disyatat, Piti, The Effectiveness of Foreign Exchange Intervention in Emerging Market Countries: Evidence from the Czech Koruna. BIS Working Paper No. 172. Available at SSRN: https://ssrn.com/abstract=761404 or http://dx.doi.org/10.2139/ssrn.761404

Gabriele Galati (Contact Author)

De Nederlandsche Bank ( email )

PO Box 98
1000 AB Amsterdam
Amsterdam, 1000 AB
Netherlands

Piti Disyatat

Puey Ungphakorn Institute for Economic Research, Bank of Thailand ( email )

273 Samsen Road
Bangkhunphrom, Bangkok 10200
Thailand

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