A0212
Title: Systematic foreign exchange intervention and macroeconomic stability: A Bayesian DSGE approach
Authors: Mitsuru Katagiri - Hosei University (Japan) [presenting]
Abstract: The role of foreign exchange interventions (FXIs) is studied by introducing a systematic FXI policy into a small open economy DSGE model. While the systematic FXI policy can either stabilize or destabilize the economy depending on the type of shocks (productivity, external, or monetary), a quantitative analysis of Vietnamese data using a Bayesian method reveals that FXIs significantly contribute to macroeconomic stability there. With FXIs that sufficiently insulate an economy from the external shock, the real FX rate is mainly accounted for by productivity shocks, in contrast with the exchange rate disconnect but consistent with the Balassa--Samuelson relationship.