Uncovered interest parity with foreign exchange interventions under exchange rate peg and inflation targeting: The case of Ukraine

Anton Grui (anton.grui@bank.gov.ua)
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Anton Grui: National Bank of Ukraine

No 14-2020, IHEID Working Papers from Economics Section, The Graduate Institute of International Studies

Abstract: In this study, I modify the uncovered interest parity condition to account for foreign exchange interventions in the context of a small open economy. This is done in a framework of a semistructural New Keynesian model. I examine the case of Ukraine, which de facto transitioned to inflation targeting with a managed float in 2015 after a long period of pegged exchange rate. I simulate model-consistent foreign exchange interventions and use them to quantify the effectiveness of those actually observed. The proposed modification is relevant for inflation targeting regimes with foreign exchange interventions as an additional instrument and those in transition.

Keywords: New Keynesian model; UIP; exchange rate; FX interventions (search for similar items in EconPapers)
JEL-codes: E12 E17 E52 F31 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2020-08-18
New Economics Papers: this item is included in nep-cba, nep-cis, nep-mac and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:gii:giihei:heidwp14-2020

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