Foreign exchange market interventions under inflation targeting: The case of Guatemala

Juan Catalán-Herrera

Journal of International Financial Markets, Institutions and Money, 2016, vol. 42, issue C, 101-114

Abstract: This paper studies the effectiveness of FX interventions within an inflation targeting context. I estimate the central bank reaction function, using a friction model à la Rosett. Then, I use the conditional expectation of intervention, as an instrument for actual interventions in a reduced form model of exchange rate daily-returns. Results show evidence of threshold effects in the reaction function, and indicate that intervention had a dampening effect over the daily exchange rate return's volatility, but no influence over the level of exchange rate. The central bank reacted systematically to previous-day exchange rate changes and to deviations from short-term trends.

Keywords: Monetary policy; Exchange rates; Intervention; Guatemala (search for similar items in EconPapers)
JEL-codes: E52 F31 F42 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:intfin:v:42:y:2016:i:c:p:101-114

DOI: 10.1016/j.intfin.2016.02.003

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