Exogenous and endogenous sterilisation under managed exchange rates

George Pantelopoulos

Review of International Economics, 2021, vol. 29, issue 4, 756-779

Abstract: One of the most widely debated aspects of international macroeconomics surrounds the efficacy of Central Bank sterilisation. However, ‘exogenous’ sterilisation initiatives by the Central Bank are involuntary if policymakers are to achieve a policy rate objective. Also, in many instances any excess liquidity is able to be sterilised ‘endogenously’ by commercial banks. To demonstrate both forms of sterilisation, this paper employs several structural VAR models. We show that (a) both exogenous and endogenous sterilisation initiatives are more or less involuntary, (b) the impossible trinity can be challenged and (c) why imbalances across the international monetary system can occur and persist.

Date: 2021
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https://doi.org/10.1111/roie.12497

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