The Impact of Foreign Exchange Reserve Management Dynamics and the Structure of Central Bank Interventions on Foreign Exchange Market Stabilization Using Gerton and Roper Theory

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Mahbubi Hadi; Momeni Vesaliyan Houshang; DAMAN KESHIDEH MARJAN; Nesabiyan Shahriyar

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Journal: Financial Economics Year:2022 | Volume:16 | Issue:58 Page(s): 233-256

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Title

The Impact of Foreign Exchange Reserve Management Dynamics and the Structure of Central Bank Interventions on Foreign Exchange Market Stabilization Using Gerton and Roper Theory

Author(s)

Mahbubi Hadi | Momeni Vesaliyan Houshang | DAMAN KESHIDEH MARJAN | Nesabiyan Shahriyar | Issue Writer Certificate

Keywords

Foreign Exchange Reserves Management

Foreign Exchange Market Pressure

Central Bank Intervention

Gerton and Roper Theory

Threshold Approach Model

Abstract

The purpose of this paper is to estimate the impact of the dynamics of Foreign Exchange Reserves Management and the structure of Central Bank Interventions on the stabilization of the foreign exchange market using Gerton and Roper Theory. For this purpose, first the Central Bank Intervention index was calculated with the Foreign Exchange Market Pressure approach and then the intervention function of the intervention policy with the threshold approach (STAR) was estimated based on the annual data of 1365-1398. The results of estimating the linear part of the model show that the variables of Foreign Exchange Market Pressure index and budget deficit have a negative effect on the real exchange rate in Iran. Meanwhile, the results of estimating the nonlinear part of the model indicate the positive effect of the growth rate of foreign exchange earnings from oil sales, net exports, consumer price index and fiscal policy index on the real exchange rate in Iran. This indicates that as the growth rate of foreign exchange earnings from oil sales increases, the amount of foreign exchange resources of the country (nominal exchange rate) increases. With the increase of the country's foreign exchange resources, the real value of the domestic currency increases and this is a factor in reducing the real exchange rate and worsening the country's export situation. In fact, in Iran, due to high inflation, governments have always tried to keep the exchange rate low to prevent price increases. The result of this type of intervention has been the inflexibility of the nominal exchange rate in response to economic changes and developments, which can be a factor in reducing the real exchange rate in recent decades in Iran.

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APA: Copy

Mahbubi, Hadi, Momeni Vesaliyan, Houshang, DAMAN KESHIDEH, MARJAN, & Nesabiyan, Shahriyar. (2022). The Impact of Foreign Exchange Reserve Management Dynamics and the Structure of Central Bank Interventions on Foreign Exchange Market Stabilization Using Gerton and Roper Theory. JOURNAL OF FINANCIAL ECONOMICS (FINANCIAL ECONOMICS AND DEVELOPMENT), 16(58 ), 233-256. SID. https://sid.ir/paper/964796/en

Vancouver: Copy

Mahbubi Hadi, Momeni Vesaliyan Houshang, DAMAN KESHIDEH MARJAN, Nesabiyan Shahriyar. The Impact of Foreign Exchange Reserve Management Dynamics and the Structure of Central Bank Interventions on Foreign Exchange Market Stabilization Using Gerton and Roper Theory. JOURNAL OF FINANCIAL ECONOMICS (FINANCIAL ECONOMICS AND DEVELOPMENT)[Internet]. 2022;16(58 ):233-256. Available from: https://sid.ir/paper/964796/en

IEEE: Copy

Hadi Mahbubi, Houshang Momeni Vesaliyan, MARJAN DAMAN KESHIDEH, and Shahriyar Nesabiyan, “The Impact of Foreign Exchange Reserve Management Dynamics and the Structure of Central Bank Interventions on Foreign Exchange Market Stabilization Using Gerton and Roper Theory,” JOURNAL OF FINANCIAL ECONOMICS (FINANCIAL ECONOMICS AND DEVELOPMENT), vol. 16, no. 58 , pp. 233–256, 2022, [Online]. Available: https://sid.ir/paper/964796/en

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