The impact of pre-announced day-to-day interventions on the Colombian exchange rate

Juan J. Echavarría (), Luis Melo-Velandia and Mauricio Villamizar-Villegas
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Juan J. Echavarría: Banco de la República de Colombia

Empirical Economics, 2018, vol. 55, issue 3, No 16, 1319-1336

Abstract: Abstract There is a general lack of consensus within the literature on the question of how to intervene in the foreign exchange market. Are secret (dirty) interventions more powerful than pre-announced interventions? This paper compares the effects of pre-announced day-to-day intervention with respect to discretionary intervention, by combining a Tobit-GARCH policy function with an asymmetric power PGARCH impact function. Using Colombia as a case study, we show that the impact of pre-announced daily interventions, adopted in 2008, is larger than the impact of dirty interventions adopted during 2004–2007. In terms of the former, we find that the impact of a change in daily interventions (from US$ 20 million to US$ 40 million) raises the exchange rate by approximately COP $2, implying that actual interventions of US$ 1000 million depreciate domestic currency by 5.5%. Additionally, we find that capital controls had a positive effect on the exchange rate.

Keywords: Central bank intervention; Reaction function; Tobit-GARCH; Foreign exchange intervention; Capital controls (search for similar items in EconPapers)
JEL-codes: E52 E58 F31 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (15)

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Related works:
Working Paper: The Impact of Pre-announced Day-to-day Interventions on the Colombian Exchange Rate (2013)
Working Paper: The impact of pre-announced day-to-day interventions on the Colombian exchange rate (2013)
Working Paper: The Impact of Pre-announced Day-to-day Interventions on the Colombian Exchange Rate (2013)
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DOI: 10.1007/s00181-017-1299-1

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