FX Intervention to Stabilize or Manipulate the Exchange Rate? Inference from Profitability

Damiano Sandri

No 1059, BIS Working Papers from Bank for International Settlements

Abstract: We analyze the profitability of FX swaps used by the central bank of Brazil to shed light on the rationale for FX intervention. We find that swaps are profitable from an ex-ante perspective, suggesting that FX intervention is used to stabilize the exchange rate against temporary excessive fluctuations relative to UIP conditions. Consistent with this interpretation, we document that the direction and size of FX intervention respond to UIP deviations. We also find that FX intervention respond more aggressively to UIP deviations when there is less uncertainty about the future level of the exchange rate and when the exchange rate is overvalued.

Keywords: FX intervention; profitability; exchange rate (search for similar items in EconPapers)
JEL-codes: E58 F31 (search for similar items in EconPapers)
Date: 2022-12
New Economics Papers: this item is included in nep-ban, nep-cba and nep-mon
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Related works:
Journal Article: FX intervention to stabilize or manipulate the exchange rate? Inference from profitability (2023)
Working Paper: FX Intervention to Stabilize or Manipulate the Exchange Rate? Inference from Profitability (2020)
Working Paper: FX Intervention to Stabilize or Manipulate the Exchange Rate? Inference from Profitability (2020)
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