Are changes in foreign exchange reserves a good proxy for official intervention?

Sandy Suardi and Yuanchen Chang

Journal of International Financial Markets, Institutions and Money, 2012, vol. 22, issue 4, 678-695

Abstract: Little is known about the adequacy of changes in reserves as a proxy for intervention despite its use in computing exchange market pressure index. This paper demonstrates the co-movement between monthly reserves changes and intervention is governed by intervention amount, the frequency of the intervention and the nature of intervention activity. We find purchases and sales of US dollars intervention produces correlation asymmetry in the US but not in Japan and Germany. Furthermore, the conditional correlation is stronger when intervention frequency and amount increase. Our results are robust to influence of key macroeconomic factors and revaluation effects on foreign reserves.

Keywords: Foreign exchange reserves; Central bank intervention; Conditional correlation (search for similar items in EconPapers)
JEL-codes: F31 F33 G15 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:intfin:v:22:y:2012:i:4:p:678-695

DOI: 10.1016/j.intfin.2012.04.004

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