Basu, KaushikVaroudakis, Aristomene2013-09-042013-09-042013-05https://hdl.handle.net/10986/15551The paper is about the art of exchange rate management by central banks. It begins by reviewing the diversity of objectives and practices of central bank intervention in the foreign exchange market. Central banks typically exercise discretion in determining when and to what extent to intervene. Some central banks use publicly declared rules of intervention, with the aim of increasing visibility and strengthening the signaling channel of policy. There is tentative evidence that the volatility of foreign exchange reserves is comparatively lower in emerging market economies where central banks follow some form of rules-based foreign exchange intervention. The paper goes on to argue that when the foreign exchange market includes some large strategic participants, the central bank can achieve superior outcomes if intervention takes the form of a rule, or "schedule," indicating commitments to buying and selling different quantities of foreign currency conditional on the exchange rate. Exchange rate management and reserve management can then be treated as two independent objectives by the central bank. In line with the stylized facts reviewed, this would enable a central bank to pursue exchange rate objectives with minimum reserve changes, or achieve reserve targets with minimum impact on the exchange rate.en-USCC BY 3.0 IGOACCUMULATION OF RESERVESADVANCED ECONOMIESADVANCED ECONOMYARBITRAGEASSET POSITIONSASSETSAUCTIONAUCTION AMOUNTSAUCTIONSBANK POLICYBONDSBROKERSBUFFERSCALL OPTIONSCAPITAL ACCOUNTCAPITAL FLOWCAPITAL FLOWSCAPITAL INFLOWSCAPITAL OUTFLOWSCENTRAL BANKCENTRAL BANK POLICYCENTRAL BANKSCOMMODITYCOMPETITIVE MARKETCONSUMERSCRAWLING PEGCREDIBILITYCREDIT GROWTHCURRENCY BASKETSCURRENCY CONVERTIBILITYCURRENCY CRISESCURRENCY DEPRECIATIONCURRENCY MARKETSCURRENCY SWAPSCURRENT ACCOUNTCURRENT ACCOUNT SURPLUSESDEBTDEBT CRISISDEBT REPAYMENTDEBT SERVICINGDEFLATIONDEMAND CURVEDEPRECIATIONSDEVALUATIONDEVELOPING COUNTRIESDEVELOPMENT ECONOMICSDEVELOPMENT POLICYDOLLAR EXCHANGE RATEDOMESTIC CREDITDOMESTIC CREDIT GROWTHDOMESTIC CURRENCYDOMESTIC LIQUIDITYECONOMIC CRISISECONOMIC OUTLOOKECONOMIC POLICYEFFECTIVE EXCHANGE RATEEMERGING ECONOMIESEMERGING MARKETEMERGING MARKET ECONOMIESEMERGING MARKETSEQUILIBRIUMEXCESS DEMANDEXCHANGE RATEEXCHANGE RATE APPRECIATIONEXCHANGE RATE FLUCTUATIONSEXCHANGE RATE LEVELEXCHANGE RATE LEVELSEXCHANGE RATE MANAGEMENTEXCHANGE RATE MISALIGNMENTEXCHANGE RATE MOVEMENTSEXCHANGE RATE OVERVALUATIONEXCHANGE RATE PEGSEXCHANGE RATE POLICIESEXCHANGE RATE REGIMEEXCHANGE RATE REGIMESEXCHANGE RATE STABILITYEXCHANGE RATE VOLATILITYEXCHANGE-RATEEXPECTED RETURNEXPORT EARNINGSEXPOSUREEXTERNAL COMPETITIVENESSEXTERNAL DEBTFEDERAL RESERVEFEDERAL RESERVE BANKFINANCIAL CRISISFINANCIAL INSTITUTIONSFINANCIAL MARKETFINANCIAL STABILITYFINANCIAL STRESSFLEXIBLE EXCHANGE RATEFLEXIBLE EXCHANGE RATESFLOATING EXCHANGE RATEFLOATING EXCHANGE RATE REGIMEFLOATING EXCHANGE RATESFOREIGN CURRENCYFOREIGN CURRENCY BORROWINGFOREIGN EXCHANGEFOREIGN EXCHANGE MARKETFOREIGN EXCHANGE MARKET INTERVENTIONFOREIGN EXCHANGE MARKETSFOREIGN EXCHANGE RESERVEFOREIGN EXCHANGE RESERVESFOREIGN TRADEFORWARD MARKETFORWARD MARKETSGDPGOLDGOVERNMENT BONDSHOLDINGHOLDINGSIMPERFECT COMPETITIONINCOMEINCOME FLOWSINFLATIONINFLATION RATEINFLATION TARGETINFLATION TARGETINGINFLATION TARGETSINSTRUMENTINSURANCEINSURANCE COMPANIESINTEREST PARITYINTEREST RATEINTERNATIONAL BANKINTERNATIONAL CREDITINTERNATIONAL MARKETINTERNATIONAL RESERVESINTERNATIONAL SETTLEMENTSINVESTINGINVESTMENT PERIODLIQUIDITYMARKET CONDITIONSMARKET CONFIDENCEMARKET CONTAGIONMARKET EXCHANGE RATEMARKET MICROSTRUCTUREMARKET PARTICIPANTSMARKET VALUESMICROSTRUCTUREMONETARY AUTHORITIESMONETARY POLICIESMONETARY POLICYMONETARY POLICY FRAMEWORKMONEY MARKETMONEY SUPPLYNASH EQUILIBRIUMNET CAPITALNOMINAL ANCHORSNOMINAL EXCHANGE RATEOIL EXPORTSOLIGOPOLYOPPORTUNITY COSTOPPORTUNITY COSTSOTHER CURRENCIESOUTSTANDING STOCKPAYMENT OF INTERESTPEGPEGSPENSIONPENSION FUNDPORTFOLIOPOST-CRISIS PERIODPRICE INCREASESPRIMARY COMMODITYPRODUCT MARKETSPUBLIC DEBTPUT OPTIONSREAL ESTATERELATIVE EXCHANGE RATEREPOREPO WINDOWREPOSRESERVERESERVE ACCUMULATIONRESERVE BANKRESERVE CHANGESRESERVE CURRENCIESRESERVE HOLDINGRESERVE HOLDINGSRETURNRETURNSSHORT-TERM CAPITALSHORT-TERM INTEREST RATESSPECULATIVE ATTACKSSPEED OF ADJUSTMENTSPOT EXCHANGE RATESPOT MARKETSTANDARD DEVIATIONSUPPLY CURVESUPPLY CURVESSUPPLY OF CREDITSWAPSTRANSACTIONUNCERTAINTYUNDERVALUATIONVALUATIONVOLATILE CAPITALVOLATILITYVOLATILITY OF CAPITALWEALTHWORLD ECONOMYZERO INTEREST RATEWorld Bank10.1596/1813-9450-6460