Central bank securities and FX market intervention in a developing economy

Eli Direye and Tarron Khemraj

MPRA Paper from University Library of Munich, Germany

Abstract: The Bank of Papua New Guinea has maintained an active policy of foreign exchange market intervention. This monetary tool is associated with a depreciating currency and a worsening shortage of foreign currencies in the domestic market – suggesting that at most the policy instrument leans against existing FX market pressure. However, the one-sided sales of central bank securities (or bills) engender an appreciation of the rate and an easing of the shortage in the domestic FX market. Supported by empirical evidence, we demonstrate that the one-sided sales of central bank bills perform like an instrument of monetary policy for foreign exchange market stability in the presence of persistent non-remunerated excess bank reserves.

Keywords: Papua New Guinea; central bank bills; one-sided sterilization; foreign exchange intervention (search for similar items in EconPapers)
JEL-codes: E50 E52 E58 F4 F41 H63 O10 (search for similar items in EconPapers)
Date: 2021-03-01, Revised 2021-08-09
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:111533

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