The effectiveness of forex interventions in four Latin American countries

Carmen Broto

No 1226, Working Papers from Banco de España

Abstract: Many central banks actively intervene in the foreign exchange (forex) market, although there is no consensus on its impact on the exchange rate level and volatility. We analyze the effects of daily forex interventions in four Latin American countries with inflation targets — namely, Chile, Colombia, Mexico and Peru — by fitting GARCH-type models. These countries represent a broad span of intervention strategies in terms of size and frequency, ranging from pure discretionality to intervention rules. We also provide new evidence on the presence of asymmetries, which arise if foreign currency purchases and sales have different effects on the exchange rate. We find that first interventions, either isolated or initial in a rule, reduce exchange rate volatility, although their size plays a minor role. Our results support the signaling effect of interventions under inflation targeting regimes

Keywords: Exchange rate volatility; Foreign exchange interventions; GARCH (search for similar items in EconPapers)
JEL-codes: C54 F31 G15 (search for similar items in EconPapers)
Pages: 42 pages
Date: 2012-07
New Economics Papers: this item is included in nep-ifn, nep-lam, nep-mon and nep-mst
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

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Related works:
Journal Article: The effectiveness of forex interventions in four Latin American countries (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:bde:wpaper:1226

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