Abstract/Description

This study examines the relationship between central bank transparency (CBT) and foreign exchange market vulnerability, focusing on exchange market pressure (EMP) to provide a comprehensive understanding. Using panel bounds testing approach to cointegration based analysis, the study covers both developed and emerging markets, incorporating the global financial crisis (GFC) and various control variables. External policy uncertainty and FX regimes are also considered to elucidate the nuanced relationship between CBT and EMP. Findings reveal that improved CBT reduces EMP, with financial development moderating this effect, suggesting well-developed financial systems lead to more stable exchange markets. CBT consistently relieves EMP during both crisis and non-crisis periods, emphasizing the importance of information disclosure. However, CBT's impact varies with FX regimes and is conditional on financial integration, which enhances CBT's effectiveness in emerging markets but nullifies it and increases EMP in advanced markets, indicating that US investors' behavior differs between market types.

Keywords

Central Bank Transparency, Foreign Exchange Market, Exchange Market Pressure, Global Financial Crisis, Exchange Rate Regimes

Location

S1 room, Adamjee building

Session Theme

Evolving Dynamics in Inflation, Monetary and Fiscal Policy

Session Type

Parallel Technical Session

Session Chair

Kalim Hyder, State Bank of Pakistan

Session Discussant

Ilfan Oh, Institute of Business Administration ; Karim Khan, Pakistan Institute of Development Economics

Start Date

10-12-2024 3:15 PM

End Date

10-12-2024 5:15 PM

Click the Download button to view presentation slides.

Included in

Finance Commons

Share

COinS
 
Dec 10th, 3:15 PM Dec 10th, 5:15 PM

Does Central Bank Transparency Curb Foreign Exchange Vulnerability?

S1 room, Adamjee building

This study examines the relationship between central bank transparency (CBT) and foreign exchange market vulnerability, focusing on exchange market pressure (EMP) to provide a comprehensive understanding. Using panel bounds testing approach to cointegration based analysis, the study covers both developed and emerging markets, incorporating the global financial crisis (GFC) and various control variables. External policy uncertainty and FX regimes are also considered to elucidate the nuanced relationship between CBT and EMP. Findings reveal that improved CBT reduces EMP, with financial development moderating this effect, suggesting well-developed financial systems lead to more stable exchange markets. CBT consistently relieves EMP during both crisis and non-crisis periods, emphasizing the importance of information disclosure. However, CBT's impact varies with FX regimes and is conditional on financial integration, which enhances CBT's effectiveness in emerging markets but nullifies it and increases EMP in advanced markets, indicating that US investors' behavior differs between market types.