Effectiveness of Reserve Money Withdrawal – empirical analysis results

Sterilization is one of the ways to prevent automatic spill over of the effects of interventions in the foreign exchange market on the money supply. The effectiveness of sterilization can be examined by applying the concept of sterilization coefficient, off-set coefficient and neutralization coefficient. Empirical analysis of the sterilization, off-set and neutralization coefficients was made with a view to ascertaining the extent to which the National Bank of Serbia’s sterilization policy managed to neutralize the effect of reserve money creation through net foreign exchange transactions. Another purpose of this analysis was to assess the government’s contribution to sterilization, as well as the impact of sterilization-related monetary policy measures on foreign borrowing by banks.