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International Reserve Policy and Effectiveness of Sterilized FX Intervention in Colombia

Hernando Vargas-Herrera (), Pamela Cardozo () and Mauricio Villamizar-Villegas ()
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Pamela Cardozo: Banco de la República de Colombia

Borradores de Economia from Banco de la Republica de Colombia

Abstract: Two FX policy issues are discussed based on the recent Colombian experience. First, the increased participation of foreign investors in local bond markets since 2014 induced a reassessment of international reserve adequacy. We present the resulting LCR-type methodology to evaluate adequacy, together with a brief description of the international reserve management strategy in Colombia. Second, we shed some light on the debate regarding the effectiveness of sterilized FX intervention, showing that exchange rate effects depend on the “flimsiness” of exchange rate expectations or their fundamental determinants. To support this, we provide both empirical and theoretical evidence. **** RESUMEN: En este trabajo analizamos algunos aspectos sobre las políticas de reservas internacionales y la intervención cambiaria en Colombia en los últimos años. En particular, discutimos el nivel adecuado de las reservas internacionales, la gestión de los portafolios de reservas y la efectividad de la intervención cambiaria. Argumentamos que el fuerte aumento de la participación de inversionistas extranjeros en los mercados de capitales locales registrado desde 2014 ha implicado una reflexión sobre el nivel adecuado de liquidez externa del país. Respecto a la efectividad de la intervención cambiaria esterilizada, encontramos que la incertidumbre cambiaria, capturada a través de la volatilidad de la tasa de cambio a 1 mes, magnifica el efecto de la intervención en aproximadamente 1% y sus efectos perduran durante 3 semanas.

Keywords: Intervención esterilizada; reservas internacionales; Colombia; sterilized FX intervention; international reserves; Colombia (search for similar items in EconPapers)
JEL-codes: F31 E58 (search for similar items in EconPapers)
Pages: 16
Date: 2019-07
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https://doi.org/10.32468/be.1086

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