erc/metu
INTERNATIONAL CONFERENCE IN ECONOMICS  IV
September 13-16, 2000, Ankara

Modeling the Central Bank Foreign Exchange Intervention

İlhan Koçaker (Central Bank Of the Republic of Turkey (CBRT))
Mehtap Kesriyeli (CBRT and University of Manchester, UK )

Abstract  

In conducting monetary policy, daily liquidity management has an important role. The Central Bank performs the daily liquidity management through open market operations, operations in interbank and interventions in foreign exchange market. Open market operations and interbank operations can be considered as “known” a somewhat priori, and can be controlled according to its own objectives by the Central Bank. On the other hand, interventions on the foreign exchange market depend on daily movements of the exchange rate basket. Therefore, amount of intervention in foreign exchange market gains importance in conducting the daily liquidity management. The main idea of the paper is to model and forecast the amount of daily intervention of Central Bank in foreign exchange market. Two alternative models are estimated for this purpose. In the first part, the daily change in the amount intervention is modelled. In the second part the variable of interest is not the acceleration of market. In this case, it is considered that whether the market itself displays optimistic or pessimistic tendency at that day. Even though the explanatory power of this model is much less compared to the first one, this model captures the turning points better. This model covers the period before the implementation of the stabilisation program. As it is known after that period there is a pre-announced foreign exchange basket, but even if there is no pre-announced target before that period there is an implicit target for the basket.

Economic Research Center
Middle East Technical University
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