Abstract
The objectives of this paper are threefold. Firstly, to explain by which channels foreign exchange interventions influence the change of exchange rate. Secondly, to explain why foreign exchange interventions are sometimes not effective. Thirdly, to analyze the effectiveness of foreign exchange interventions of the Croatian National Bank using the event study method. Given the latter, the central bank of the Republic of Croatia, the Croatian National Bank regularly intervenes on the foreign exchange market in order to prevent excessive Euro to Kuna exchange rate fluctuation. In the paper, it is shown that the foreign exchange interventions in the Republic of Croatia, in the period from 2013 to 2017, were mostly effective, disregarding whether they were supporting the exchange rate trend, were going against the trend, or were just smoothing it. In other words, the Croatian National Bank effectively managed Euro to Kuna exchange rate fluctuation.
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