We thank the Czech National Bank, particularly former Governor Zdenek Tuma, for access to the proprietary official intraday reserve sales data and for invaluable discussions. We have also benefited greatly from discussions with Karel Bauer and Petr Frydrych of the Czech National Bank. The paper was presented at the ASSA meeting (Chicago), the Bank of Japan, the Federal Reserve Bank of St. Louis, and the IMF; we thank seminar participants as well as two anonymous referees and an editor of this journal for very helpful comments. Dominguez and Fatum are grateful to the International Policy Center at the Ford School of Public Policy and Social Sciences and Humanities Research Council of Canada (SSHRC), respectively, for financial support. Vacek gratefully acknowledges financial support from the Czech Science Foundation (grant no. P402/12/G097). Thomas Bridges and Brian Wojcik provided outstanding research assistance.
Do Sales of Foreign Exchange Reserves Lead to Currency Appreciation?
Article first published online: 11 JUL 2013
© 2013 The Ohio State University
Journal of Money, Credit and Banking
Volume 45, Issue 5, pages 867–890, August 2013
How to Cite
DOMINGUEZ, K. M.E., FATUM, R. and VACEK, P. (2013), Do Sales of Foreign Exchange Reserves Lead to Currency Appreciation?. Journal of Money, Credit and Banking, 45: 867–890. doi: 10.1111/jmcb.12028
- Issue published online: 11 JUL 2013
- Article first published online: 11 JUL 2013
- Manuscript Accepted: 29 JUN 2012
- Manuscript Received: 1 AUG 2011
- International Policy Center at the Ford School of Public Policy and Social Sciences and Humanities Research Council of Canada (SSHRC)
- Czech Science Foundation. Grant Number: P402/12/G097
- foreign exchange reserves;
- exchange rate determination;
- high-frequency volatility modeling
We employ novel time-stamped reserve sales data, provided by the Czech National Bank (CNB), to carry out a time-series analysis of the exchange rate implications of Czech reserve sales aimed at mitigating valuation losses on Euro-denominated assets. The sales were explicitly not intended to influence the value of the koruna relative to the euro. The period under study includes a well-defined regime change in the CNB's approach to reserves sales, allowing us to address whether the manner in which the sales are carried out matters for their influence on the relative value of the domestic currency. We find little evidence that reserve sales influence the exchange rate when sales are carried out on a discretionary and relatively infrequent basis. However, when the sales are carried out daily, we find a statistically and economically significant appreciation of the domestic currency follows.