Effectiveness of foreign exchange interventions: evidence from New Zealand

Andrew Besuyen, Tom Coupé and Kuntal Das

New Zealand Economic Papers, 2021, vol. 55, issue 3, 289-309

Abstract: This paper examines the effectiveness of explicit and implicit foreign exchange (FX) interventions in New Zealand: one secret spot market intervention and two implicit interventions – a regular Monetary Policy Statement (MPS) and an unexpected oral intervention by the Reserve Bank of New Zealand (RBNZ) governor addressing the New Zealand Dollar (NZD). By applying a synthetic control methodology to a unique dataset of RBNZ interventions, we construct a counterfactual to estimate their effect. The results indicate that the actual intervention and the MPS release were ineffective in moving the NZD. However, the speech depreciated the NZD by 1.12%, although the effect was small and short lived. Our findings suggest that FX interventions, explicit or implicit, are a weak policy tool to affect the exchange rate in New Zealand.

Date: 2021
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Working Paper: Effectiveness of Foreign Exchange Interventions: Evidence from New Zealand (2021)
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DOI: 10.1080/00779954.2020.1871063

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