Foreign exchange interventions at the zero lower bound in the Czech economy: A DSGE approach

Arbeitspapier

The paper contributes to understanding the economic dynamics at the zero lower bound and the exchange rate movements under different central bank intervention regimes. It provides a theoretical framework for modeling foreign exchange interventions at the ZLB within a dynamic general equilibrium model. We find a pronounced volatility of real and nominal macroeconomic variables in response to the domestic demand shock, the foreign demand and financial shocks and the terms-of-trade shock at the ZLB. This effects become severe in response to highly persistent shocks which leads to stronger reaction of variables and prolong period of binding constraint. The FX interventions have proven to be effective in mitigating deflationary pressures and recovering the economic activity in response to all examined shocks at the ZLB. In this sense, the central bank achieves the best performance by fixing the nominal exchange rate temporarily at the ZLB.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: IES Working Paper ; No. 13/2015

Classification and Topics

• Classification: Wirtschaft ; Bayesian Analysis: General ; Price Level; Inflation; Deflation ; Interest Rates: Determination, Term Structure, and Effects ; Monetary Policy ; Central Banks and Their Policies ; Foreign Exchange
• Subject: zero lower bound ; foreign exchange interventions ; dynamic stochastic general equilibrium ; Bayesian estimation ; exchange rate and price dynamics

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Malovaná, Simona
• Event: Veröffentlichung
• (who): Charles University in Prague, Institute of Economic Studies (IES)
• (where): Prague
• (when): 2015

Further information

• Handle: http://hdl.handle.net/10419/120433
• Last update: 10.03.2025, 11:42 AM CET