The Immediate Impact and Persistent Effect of FX Purchases on the Exchange Rate

Itamar Caspi, Amit Friedman and Sigal Ribon
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Amit Friedman: Bank of Israel

International Journal of Central Banking, 2022, vol. 18, issue 5, 1-31

Abstract: In recent years, foreign exchange (FX) interventions have been routinely used by the Bank of Israel and other central banks as an additional monetary instrument to moderate appreciation trends of the domestic currency. This paper analyzes the immediate effect of the Bank of Israel’s FX interventions on the exchange rate and its persistence over time. To identify this effect, we first measure the intraday impact of FX intervention using a novel confidential, high-frequency, minute-by-minute data set of interventions between 2009 and 2017. Next, we use our measure to estimate the persistence of FX intervention shocks over longer horizons (in trading days), using local projections. We find that FX intervention shocks cause, on impact, USDILS exchange rate depreciation in over 90 percent of the cases. We also find that this effect has a persistent effect on the USDILS exchange rate for 40–60 trading days.

JEL-codes: C22 E58 F31 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (2)

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Related works:
Working Paper: The Immediate Impact and Persistent Effect of FX Purchases on the Exchange Rate (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:ijc:ijcjou:y:2022:q:5:a:4

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