Do Exchange Rate Shocks Have Asymmetric Effects on Reserve Accumulation? Evidence from Emerging Markets

Shiu Sheng Chen, Tzu-Yu Lin

Research output: Contribution to journalArticlepeer-review

Abstract

It is generally argued that central banks in emerging market countries, motivated by a desire to defend export competitiveness, tend to intervene in foreign exchange markets to limit currency appreciations rather than depreciations. Using panel data from 13 emerging market countries for the period 1998:M1 to 2016:M12, we find that exchange rate shocks play an important role in determining the accumulation of international reserves. Moreover, we find evidence that central banks in emerging markets tend to follow a “leaning against the depreciation wind” policy, rather than the appreciation wind (i.e., we provide evidence of a “fear of depreciation”).

Original languageEnglish
Pages (from-to)1561-1586
Number of pages26
JournalScandinavian Journal of Economics
Volume121
Issue number4
DOIs
Publication statusPublished - 2019 Oct 1

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics

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