Work detail

Do Central Bank FX Reserves Matter for Inflation?

Author: Mgr. Martin Keblúšek
Year: 2020 - summer
Leaders: prof. PhDr. Tomáš Havránek Ph.D.
Work type: Masters
Language: English
Pages: 70
Awards and prizes:
Abstract: Foreign exchange reserves are a useful tool and a buffer but maintaining an amount that is too
large can be costly to the economy. Recent accumulation of these reserves points to the
importance of this topic. This thesis focuses on one specific part of the effect of FX reserves on
the economy – the inflation. I use panel data for 74 countries from the year 1996 to the year
2017. There is a certain degree of model uncertainty for which this thesis accounts for by using
Bayesian model averaging (BMA) estimation technique. The findings from my model
averaging estimations show FX reserves to not be of importance for inflation determination
with close to no change when altering lags, variables, when limiting the sample to fixed FX
regimes nor when limiting the sample to inflation targeting regimes. The most important
variables are estimated to be a central bank financial strength proxy, exchange rate depreciation,
money supply, inflation targeting, and capital account openness. These results are robust to lag
changes, prior changes, and for the most part remain the same when Pooled OLS is used.




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