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THE EFFECT OF EXCHANGE RATE VOLATILITY ON MONEY SUPPLY IN KYRGYZSTAN

Year 2018, Issue: 79, 52 - 59, 15.10.2018

Abstract

Since Kyrgyzstan is a country dependent on imports in most commodities, the Central Bank of the Kyrgyz Republic sees the exchange rates’ stability as an important instrument of price stabilizing. However, such a policy may deteriorate the stability of the total money supply and adversely affect the economy. Therefore, in this study, it is aimed to examine the relations between exchange rate, money supply and official reserves by using 2002-2016 monthly data and cointegration method. Empirical results have shown that a change in the exchange rate causes opposite changes in both the reserves and the money supply as a result of the central bank’s interventions. However, more concrete recommendations on the effectiveness of monetary policy in Kyrgyzstan are required to make more detailed analysis.

References

  • Afzal, M. (2010). “Exchange Rate and Reserves in Asian Countries: Causality Test”. Global Economic Review 39:2, p. 215-223. DOI: 10.1080/1226508X.2010.483839
  • Calvo, G. ve Reinhart, C. M. (1999). “When capital inflows come to a sudden stop: consequences and policy options”, in: P. Kenen and A. Swoboda (Eds.) Key Issues in Reform of the International Monetary and Financial System (Washington, DC: International Monetary Fund).
  • Cote, A. (1994). “Exchange Rate Volatility and Trade”, Working Paper No. 95-5 (Ottawa, Ontario: Bank of Canada).
  • Gartner, M. (1987). “Intervention Policy under Floating Exchange Rates: An Analysis of the Swiss Case”. Economica, p. 439-53.
  • Gerni, C., Sarı, S., Özdemir, D., Emsen, Ö.S. (2013). “Döviz Kuru Oynaklığı, Rezerv Oynaklığı ve Reel Faiz Oranlarının Dış Ticaret Üzerindeki Etkileri: Geçiş Ekonomileri Üzerine Uygulamalar”. Proceedings book of International Conference on Eurasian Economies, s. 412-419.
  • Hussain, I. (2002). “Why reserves”, The Daily Dawn, August.
  • Hviding, K., Nowak, M. ve Ricci, L. A. (2004). “Can Higher Reserves Help Reduce Exchange Rate Volatility? An Empirical Investigation”, Luiss Lab of European Economics Working Document No. 13 (Rome: Luiss Lab of European Economics).
  • IMF, Annual Report 2014.
  • Mastropasqua, C., Micossi, S. ve Rinaldi, R. (1988). “Interventions, Sterilization and Monetary Policy in European Monetary System Countries, 1979-1987,” in The European Monetary System: Proceedings of a Conference Organised by the Banca d’ Italia, STEP, and CEPR, Francesco Giavazzi, Stefano Micossi, and Marcus Miller, eds., Cambridge University Press, p. 252-87.
  • Narayan, P.K. (2005). “The Saving and Investment Nexus for China: Evidence from Cointegration Tests”. Applied Economics 37(17), p. 1979-1990.
  • Neely, C.J. (2000). “Are Changes in Foreign Exchange Reserves Well Correlated with Official Intervention?” Federal Reserve Bank Of St. Louis. 82(5), p. 17-31.
  • Obstfeld, M. (1983). “Exchange Rates, Inflation, and the Sterilization Problem: Germany, 1975-1981” European Economic Review March/April, p. 161-189.
  • Ozturk, I. (2006). “Exchange Rate Volatility and Trade: A Literature Survey”. International Journal of Applied Econometrics and Quantitative Studies 3-1, p. 85-102.
  • Pesaran, H.M. ve Shin, Y. (1995). “Autoregressive Distributed Lag Modelling Approach to Cointegration Analysis”. DAE Working Paper Series No. 9514. Cambridge: Department of Applied Economics, University of Cambridge.
  • Pesaran, H.M. ve Shin, Y. (1999). “Autoregressive Distributed Lag Modelling Approach to Cointegration Analysis”. Econometrics and Economic Theory in the 20th Century: The Ragnar Frisch Centennial Symposium. Cambridge: Cambridge University Press.
  • Pesaran, H.M., Shin, Y., Smith, R.J. (2001). “Bounds Testing Approaches to the Analysis of Level Relationships”. Journal of Applied Econometrics 16, p. 289-326.
  • Rogoff, K. ve Reinhart, C. (2002). “FDI to Africa: The Role of Price Stability and Currency Instability”, IMF Working Paper (Washington, DC: IMF).
  • Taylor, D. (1982). “Official Intervention in the Foreign Exchange Market, or, Bet Against the Central Bank”. Journal of Political Economy April, p. 356-68.

ВЛИЯНИЕ ВОЛАТИЛЬНОСТИ ВАЛЮТНОГО КУРСА НА ДЕНЕЖНУЮ МАССУ В КЫРГЫЗСТАНЕ

Year 2018, Issue: 79, 52 - 59, 15.10.2018

Abstract

Поскольку Кыргызстан является страной, зависящей от импорта большинства товаров, Национальный банк Кыргызской Республики видит стабильность обменных курсов как важный инструмент стабилизации цен. Однако такая политика может разрушить стабильность денежной массы и негативно повлиять на экономику. Поэтому данная статья направлена на изучение взаимосвязи между обменным курсом, денежной массой и официальными резервами с использованием ежемесячных данных 2002-2016 гг. Эмпирические результаты показали, что изменение обменного курса вызывает противоположные изменения как резервов, так и денежной массы, в результате интервенций центрального банка. Однако более конкретные рекомендации по эффективности денежно-кредитной политики в Кыргызстане требуют более детального анализа.

References

  • Afzal, M. (2010). “Exchange Rate and Reserves in Asian Countries: Causality Test”. Global Economic Review 39:2, p. 215-223. DOI: 10.1080/1226508X.2010.483839
  • Calvo, G. ve Reinhart, C. M. (1999). “When capital inflows come to a sudden stop: consequences and policy options”, in: P. Kenen and A. Swoboda (Eds.) Key Issues in Reform of the International Monetary and Financial System (Washington, DC: International Monetary Fund).
  • Cote, A. (1994). “Exchange Rate Volatility and Trade”, Working Paper No. 95-5 (Ottawa, Ontario: Bank of Canada).
  • Gartner, M. (1987). “Intervention Policy under Floating Exchange Rates: An Analysis of the Swiss Case”. Economica, p. 439-53.
  • Gerni, C., Sarı, S., Özdemir, D., Emsen, Ö.S. (2013). “Döviz Kuru Oynaklığı, Rezerv Oynaklığı ve Reel Faiz Oranlarının Dış Ticaret Üzerindeki Etkileri: Geçiş Ekonomileri Üzerine Uygulamalar”. Proceedings book of International Conference on Eurasian Economies, s. 412-419.
  • Hussain, I. (2002). “Why reserves”, The Daily Dawn, August.
  • Hviding, K., Nowak, M. ve Ricci, L. A. (2004). “Can Higher Reserves Help Reduce Exchange Rate Volatility? An Empirical Investigation”, Luiss Lab of European Economics Working Document No. 13 (Rome: Luiss Lab of European Economics).
  • IMF, Annual Report 2014.
  • Mastropasqua, C., Micossi, S. ve Rinaldi, R. (1988). “Interventions, Sterilization and Monetary Policy in European Monetary System Countries, 1979-1987,” in The European Monetary System: Proceedings of a Conference Organised by the Banca d’ Italia, STEP, and CEPR, Francesco Giavazzi, Stefano Micossi, and Marcus Miller, eds., Cambridge University Press, p. 252-87.
  • Narayan, P.K. (2005). “The Saving and Investment Nexus for China: Evidence from Cointegration Tests”. Applied Economics 37(17), p. 1979-1990.
  • Neely, C.J. (2000). “Are Changes in Foreign Exchange Reserves Well Correlated with Official Intervention?” Federal Reserve Bank Of St. Louis. 82(5), p. 17-31.
  • Obstfeld, M. (1983). “Exchange Rates, Inflation, and the Sterilization Problem: Germany, 1975-1981” European Economic Review March/April, p. 161-189.
  • Ozturk, I. (2006). “Exchange Rate Volatility and Trade: A Literature Survey”. International Journal of Applied Econometrics and Quantitative Studies 3-1, p. 85-102.
  • Pesaran, H.M. ve Shin, Y. (1995). “Autoregressive Distributed Lag Modelling Approach to Cointegration Analysis”. DAE Working Paper Series No. 9514. Cambridge: Department of Applied Economics, University of Cambridge.
  • Pesaran, H.M. ve Shin, Y. (1999). “Autoregressive Distributed Lag Modelling Approach to Cointegration Analysis”. Econometrics and Economic Theory in the 20th Century: The Ragnar Frisch Centennial Symposium. Cambridge: Cambridge University Press.
  • Pesaran, H.M., Shin, Y., Smith, R.J. (2001). “Bounds Testing Approaches to the Analysis of Level Relationships”. Journal of Applied Econometrics 16, p. 289-326.
  • Rogoff, K. ve Reinhart, C. (2002). “FDI to Africa: The Role of Price Stability and Currency Instability”, IMF Working Paper (Washington, DC: IMF).
  • Taylor, D. (1982). “Official Intervention in the Foreign Exchange Market, or, Bet Against the Central Bank”. Journal of Political Economy April, p. 356-68.

THE EFFECT OF EXCHANGE RATE VOLATILITY ON MONEY SUPPLY IN KYRGYZSTAN

Year 2018, Issue: 79, 52 - 59, 15.10.2018

Abstract

Since Kyrgyzstan is a country dependent on imports in most commodities, the Central Bank of the Kyrgyz Republic sees the exchange rates’ stability as an important instrument of price stabilizing. However, such a policy may deteriorate the stability of the total money supply and adversely affect the economy. Therefore, in this study, it is aimed to examine the relations between exchange rate, money supply and official reserves by using 2002-2016 monthly data and cointegration method. Empirical results have shown that a change in the exchange rate causes opposite changes in both the reserves and the money supply as a result of the central bank’s interventions. However, more concrete recommendations on the effectiveness of monetary policy in Kyrgyzstan are required to make more detailed analysis.

References

  • Afzal, M. (2010). “Exchange Rate and Reserves in Asian Countries: Causality Test”. Global Economic Review 39:2, p. 215-223. DOI: 10.1080/1226508X.2010.483839
  • Calvo, G. ve Reinhart, C. M. (1999). “When capital inflows come to a sudden stop: consequences and policy options”, in: P. Kenen and A. Swoboda (Eds.) Key Issues in Reform of the International Monetary and Financial System (Washington, DC: International Monetary Fund).
  • Cote, A. (1994). “Exchange Rate Volatility and Trade”, Working Paper No. 95-5 (Ottawa, Ontario: Bank of Canada).
  • Gartner, M. (1987). “Intervention Policy under Floating Exchange Rates: An Analysis of the Swiss Case”. Economica, p. 439-53.
  • Gerni, C., Sarı, S., Özdemir, D., Emsen, Ö.S. (2013). “Döviz Kuru Oynaklığı, Rezerv Oynaklığı ve Reel Faiz Oranlarının Dış Ticaret Üzerindeki Etkileri: Geçiş Ekonomileri Üzerine Uygulamalar”. Proceedings book of International Conference on Eurasian Economies, s. 412-419.
  • Hussain, I. (2002). “Why reserves”, The Daily Dawn, August.
  • Hviding, K., Nowak, M. ve Ricci, L. A. (2004). “Can Higher Reserves Help Reduce Exchange Rate Volatility? An Empirical Investigation”, Luiss Lab of European Economics Working Document No. 13 (Rome: Luiss Lab of European Economics).
  • IMF, Annual Report 2014.
  • Mastropasqua, C., Micossi, S. ve Rinaldi, R. (1988). “Interventions, Sterilization and Monetary Policy in European Monetary System Countries, 1979-1987,” in The European Monetary System: Proceedings of a Conference Organised by the Banca d’ Italia, STEP, and CEPR, Francesco Giavazzi, Stefano Micossi, and Marcus Miller, eds., Cambridge University Press, p. 252-87.
  • Narayan, P.K. (2005). “The Saving and Investment Nexus for China: Evidence from Cointegration Tests”. Applied Economics 37(17), p. 1979-1990.
  • Neely, C.J. (2000). “Are Changes in Foreign Exchange Reserves Well Correlated with Official Intervention?” Federal Reserve Bank Of St. Louis. 82(5), p. 17-31.
  • Obstfeld, M. (1983). “Exchange Rates, Inflation, and the Sterilization Problem: Germany, 1975-1981” European Economic Review March/April, p. 161-189.
  • Ozturk, I. (2006). “Exchange Rate Volatility and Trade: A Literature Survey”. International Journal of Applied Econometrics and Quantitative Studies 3-1, p. 85-102.
  • Pesaran, H.M. ve Shin, Y. (1995). “Autoregressive Distributed Lag Modelling Approach to Cointegration Analysis”. DAE Working Paper Series No. 9514. Cambridge: Department of Applied Economics, University of Cambridge.
  • Pesaran, H.M. ve Shin, Y. (1999). “Autoregressive Distributed Lag Modelling Approach to Cointegration Analysis”. Econometrics and Economic Theory in the 20th Century: The Ragnar Frisch Centennial Symposium. Cambridge: Cambridge University Press.
  • Pesaran, H.M., Shin, Y., Smith, R.J. (2001). “Bounds Testing Approaches to the Analysis of Level Relationships”. Journal of Applied Econometrics 16, p. 289-326.
  • Rogoff, K. ve Reinhart, C. (2002). “FDI to Africa: The Role of Price Stability and Currency Instability”, IMF Working Paper (Washington, DC: IMF).
  • Taylor, D. (1982). “Official Intervention in the Foreign Exchange Market, or, Bet Against the Central Bank”. Journal of Political Economy April, p. 356-68.
There are 18 citations in total.

Details

Primary Language Russian
Journal Section Research Article
Authors

Junus Ganiev

Damira Baigonushova This is me

Publication Date October 15, 2018
Submission Date June 1, 2018
Published in Issue Year 2018 Issue: 79

Cite

APA Ganiev, J., & Baigonushova, D. (2018). ВЛИЯНИЕ ВОЛАТИЛЬНОСТИ ВАЛЮТНОГО КУРСА НА ДЕНЕЖНУЮ МАССУ В КЫРГЫЗСТАНЕ. Reforma, 3(79), 52-59.