Accumulating Foreign Reserves Under Floating Exchange Rates
IMF Working Papers, April 1, 2008
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- Accumulating Foreign Reserves Under Floating Exchange Rates
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Bibliographic details
- Authors: Fernando M. Gonçalves
- Published: April 1, 2008
- Series: IMF Working Papers
Summary of purpose and approach
- Develops a theoretical framework to study the interaction between reserve accumulation and monetary policy under floating exchange rates.
- Examines how official accumulation of foreign reserves may be perceived as interventions to influence the exchange rate, potentially undermining the credibility of floating exchange rates and inflation targets.
- Analyzes institutional arrangements for delegation versus centralization of intervention and monetary policy decisions.
Key findings
- The model uncovers a trade-off between the speed of reserve accumulation and anti-inflationary credibility.
- Under reasonable assumptions, delegation of intervention and monetary policy decisions to separate government agencies allows faster reserve accumulation.
- Centralization of intervention and monetary policy decisions results in a more stable economy.
- The analysis underscores the importance of institutional features of policymaking in open economies that are often overlooked.
Subject areas and keywords
- Subject: Foreign exchange intervention, Inflation, Inflation targeting, Institutional arrangements for revenue administration, Reserves accumulation
- Keywords: monetary policy, mover accent, WP