Does the Reserve Options Mechanism really decrease exchange rate volatility? The Synthetic Control Method Approach

Huseyin Aytug ()

MPRA Paper from University Library of Munich, Germany

Abstract: After the invention of the Reserve Option Mechanism (ROM) by the Central Bank of Turkey, it has been debated whether it can help decrease the volatility of foreign exchange rate. In this study, I apply a new micro-econometric technique, the synthetic control method, in order to construct a counterfactual foreign exchange rate volatility in the absence of the ROM. I find that, USD/TRY rate is less volatile under the ROM. However, the ROM has not worked efficiently after the announcement of FED's tapering in May 2013. Furthermore, the ROM could have decreased the volatility of foreign exchange rate if FED had not started tapering.

Keywords: FX Intervention; Synthetic Control Method; Required Reserves (search for similar items in EconPapers)
JEL-codes: C31 E58 F31 (search for similar items in EconPapers)
Date: 2016-01-01
New Economics Papers: this item is included in nep-ara, nep-cba, nep-cwa, nep-mac and nep-mon
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Related works:
Journal Article: Does the reserve options mechanism really decrease exchange rate volatility? The synthetic control method approach (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:71400

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