【不胎化介入 vs 非不胎化介入の分析🌈】『Modeling Sterilized Interventions and Balance Sheet Effects of Monetary Policy in a New-Keynesian Framework』：IMF Working Paper No.9🌟2024/1/11

Sterilized versus non-sterilized exchange rate interventions

We define sterilized interventions as such exchange rate interventions that keep market interest rates unchanged.

All exchange rate interventions of central banks using interest rates as the main instrument (such as IT central banks) are automatically sterilized in this sense.

For instance, an IT central bank buying FX creates reserve money that is automatically absorbed using open market operations that target the policy rate.

Indeed, if a central bank with an interest based policy wants to imitate the results of an unsterilized intervention, it must simultaneously alter the level of its key policy rate.
For instance, it must lower the key policy rate when buying the FX.

An alternative definition would be that sterilized interventions do not change the level of reserve (base) money.
Central banks that targeted reserve money would automatically sterilize FX interventions according in this alternative sense.

The definitions are very close, because if interventions change the levels of free reserves held by the commercial banks with the central bank, then market interest rates change as well.

This paper’s main focus is on sterilized interventions that work alongside interest rates as the other central bank instrument. To simplify the exposition, the main body of the paper works with a stylized IT central bank operating an interest-rate based monetary policy.

This allows us to abstract from free reserves in the balance sheets of the central and commercial banks, because the central bank will always absorb all the reserves at its key policy rate.

Any intervention is therefore automatically sterilized. Nevertheless, the appendix extends the analysis to the case of non-interest based monetary policy where free reserves are important.

That extension is important for analyzing policy options in many money-targeting low–income economies.

The stochastic behavior of the exchange rate

A strength of our approach is that it covers traditional pegs (including crawling arrangements), managed floats of various sorts, and IT in a common framework.

This will facilitate direct comparisons that are not possible when pegs are not modeled with intervention.

In this context, an important technical issue for modeling of interventions is the stochastic behavior of the exchange rate.

In standard flexible–exchange–rate SOE models the exchange rate has a stochastic trend; its long-term trajectory is path–dependent and the steady–state/balanced–growth–path value cannot be determined ex–ante.

In such models inflationary shocks result in permanently weaker exchange rates.
The cause is the UIP condition that gives the exchange rate a unit root.

A stochastic trend in the exchange rate level may be an undesirable feature when modeling certain exchange rate regimes.

For the exchange rate level to be a nominal anchor, its behavior should not have a stochastic trend.

No matter what the shocks, the long–term exchange rate trajectory should be known ex ante.

For instance, while a shock may cause a temporary deviation of the exchange rate from this long–term trajectory, eventually the exchange rate will return to its target value.11

As a consequence, in order to provide for a general treatment of exchange rate regimes our intervention design should be able to remove the stochastic trend (unit root) from the exchange rate.12

11:This long–term trajectory need not be constant, such as in crawling pegs.

12:Models with exchange rate targeting (i.e. exchange rate terms in the interest rate reaction function) typically have a stochastic trend in the exchange rate, unless the interest rate rule includes a target exchange rate level (not just a rate of change) or a target price level (when modeling price targeting regimes).