Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/120433 
Year of Publication: 
2015
Series/Report no.: 
IES Working Paper No. 13/2015
Publisher: 
Charles University in Prague, Institute of Economic Studies (IES), Prague
Abstract: 
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.
Subjects: 
zero lower bound
foreign exchange interventions
dynamic stochastic general equilibrium
Bayesian estimation
exchange rate and price dynamics
JEL: 
C11
E31
E43
E52
E58
F31
Document Type: 
Working Paper

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