Foreign Exchange Intervention and Exchange Rate Volatility in Peru

Alberto Humala and Gabriel Rodríguez
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Alberto Humala: Central Reserve Bank of Peru

No 2009-008, Working Papers from Banco Central de Reserva del Perú

Abstract: Flexible exchange rate experience in Peru has been accompanied by frequent official interventions in the form of foreign exchange purchases or sales. Monetary authority pursues reducing excess volatility in the exchange rate through its direct intervention. However, in recent years, this intervention has concentrated in US dollars purchases, apparently signaling a bias towards defending a given exchange rate level (not necessarily fixed). For the period 1994 - 2007, this document assesses consistency of the empirical evidence with the goal of reducing exchange rate volatility. Thus, it uses univariate and multivariate time series models subject to stochastic shifts to study currency pressures. Results suggest consistency with the reduced-volatility goal. Nonetheless, in line with other studies, factors such as the foreign exchange gap with respect to its trend also induce foreign exchange intervention.

Keywords: Foreign Exchange Intervention; Exchange Rate Volatility; Markov-Switching Models. (search for similar items in EconPapers)
JEL-codes: C22 C32 E52 F31 (search for similar items in EconPapers)
Date: 2009-03
New Economics Papers: this item is included in nep-ifn and nep-mon
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Citations: View citations in EconPapers (8)

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Journal Article: Foreign exchange intervention and exchange rate volatility in Peru (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:rbp:wpaper:2009-008

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