Unveiling the Effects of Foreign Exchange Intervention: A Panel Approach

Gustavo Adler, Noëmie Lisack and Rui Mano

No 2015/130, IMF Working Papers from International Monetary Fund

Abstract: We study the effect of foreign exchange intervention on the exchange rate relying on an instrumental-variables panel approach. We find robust evidence that intervention affects the level of the exchange rate in an economically meaningful way. A purchase of foreign currency of 1 percentage point of GDP causes a depreciation of the nominal and real exchange rates in the ranges of [1.7-2.0] percent and [1.4-1.7] percent respectively. The effects are found to be quite persistent. The paper also explores possible asymmetric effects, and whether effectiveness depends on the depth of domestic financial markets.

Keywords: WP; interest rate; broad money; foreign exchange; foreign exchange intervention; exchange rate; reserves; FXI effect; GDP observation; FXI coefficient estimate; sterilized FXI; market size; stage FXI coefficient; carrying out FXI operation; FXI decision; Exchange rates; Real exchange rates; Real effective exchange rates; Exchange rate arrangements; Global (search for similar items in EconPapers)
Pages: 42
Date: 2015-06-23
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Citations: View citations in EconPapers (32)

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Journal Article: Unveiling the effects of foreign exchange intervention: A panel approach (2019)
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