Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/274239 
Year of Publication: 
2023
Series/Report no.: 
FMM Working Paper No. 87
Publisher: 
Hans-Böckler-Stiftung, Macroeconomic Policy Institute (IMK), Forum for Macroeconomics and Macroeconomic Policies (FMM), Düsseldorf
Abstract: 
The present article proposes to draw on the recent experiences of many central banks of advanced economies and the evolution of their operational frameworks in the new context of increased domestic liquidity, when analysing the operations of central banks that engage in exchange rate management and increase their official foreign reserves as a result. It argues that the theoretical literature on endogenous money set within the context of an open economy with an exchange rate objective needs to be amended to account for such developments, as it would be entirely possible for a central bank that accumulates substantial foreign reserves to adopt a floor system and thus maintain a near-perfect control over its policy interest rate without the need for any compensating measure. On the grounds of the reverse causation argument, establishing a direct link between the foreign reserves and the monetary base should not entail any quantitative effect on other economic variables.
Subjects: 
central bank balance sheets
endogenous money theory
foreignexchange accumulation
monetary policy implementation
JEL: 
E58
E42
E50
Creative Commons License: 
cc-by Logo
Document Type: 
Working Paper

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