Effectiveness of Foreign Exchange Interventions: Evidence from New Zealand

Andrew Besuyen, Tom Coupé and Kuntal Das

Working Papers in Economics from University of Canterbury, Department of Economics and Finance

Abstract: This paper examines the effectiveness of explicit and implicit foreign exchange (FX) interventions in New Zealand: one secret spot market intervention and two implicit interventions – a regular Monetary Policy Statement (MPS) and an unexpected oral intervention by the Reserve Bank of New Zealand (RBNZ) governor addressing the New Zealand Dollar (NZD). By applying a synthetic control methodology to a unique dataset of RBNZ interventions, we construct a counterfactual to estimate their effect. The results indicate that the actual intervention and the MPS release were ineffective in moving the NZD. However, the speech depreciated the NZD by 1.12%, although the effect was small and short lived. Our findings suggest that FX interventions, explicit or implicit, are a weak policy tool to affect the exchange rate in New Zealand.

Keywords: Foreign exchange intervention; Explicit intervention; Implicit intervention; Synthetic control; Effectiveness (search for similar items in EconPapers)
JEL-codes: C31 E58 F31 (search for similar items in EconPapers)
Pages: 42 pages
Date: 2021-02-01
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:cbt:econwp:21/01

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