To What Extent Can Central Banks Influence Exchange Rates with Foreign Exchange Interventions? The Case of Poland

Abstract

The significant depreciation of the Polish zloty in the second half of 2011, difficult to explain by fundamentals, was accompanied by a large increase in exchange rate volatility. The foreign exchange interventions carried out by the National Bank of Poland at that time were aimed at reducing the volatility of the Polish currency and the risk of its disorderly depreciation. In this regard, the two event studies presented in this paper argue that the central bank’s policy was effective. On the date of the intervention, the zloty typically appreciated against the euro while the implied volatility of the currency tended to decline.

Full publication: Market Volatility and Foreign Exchange Intervention in EMEs: What Has Changed?

Keywords: foreign exchange intervention, exchange rate volatility, central banks and their policies

JEL Classification: E58, F31, O23