Reserve accumulation and price commitment
A new paper published by the International Monetary Fund finds that foreign-exchange interventions and a rapid accumulation of reserves can damage the anti-inflationary credibility of the monetary authority.
The paper's authors argue that market participants might interpret the acquisition of foreign currency as a consequence of intervention aimed at influencing the exchange rate.
Hence, the credibility of the price stability goal may be undermined, when the authority lacks credibility.
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