Can Foreign Exchange Intervention Stem Exchange Rate Pressures from Global Capital Flow Shocks?

Olivier Blanchard, Gustavo Adler and Irineu de Carvalho Filho

No 2015/159, IMF Working Papers from International Monetary Fund

Abstract: Many emerging market economies have relied on foreign exchange intervention (FXI) in response to gross capital inflows. In this paper, we study whether FXI has been an effective tool to dampen the effects of these inflows on the exchange rate. To deal with endogeneity issues, we look at the response of different countries to plausibly exogenous gross inflows, and explore the cross country variation of FXI and exchange rate responses. Consistent with the portfolio balance channel, we find that larger FXI leads to less exchange rate appreciation in response to gross inflows.

Keywords: WP; interest rate; standard deviation; foreign exchange intervention; exchange rate; capital flows; gross capital flows; impulse response; flow shock; exchange rate appreciation; reaction function; sample use FXI; regime classification; FXI response; exchange rate response; FXI conditional; Exchange rates; Exchange rate arrangements; Capital inflows; Capital controls; Global (search for similar items in EconPapers)
Pages: 30
Date: 2015-07-16
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Citations: View citations in EconPapers (129)

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Related works:
Working Paper: Can Foreign Exchange Intervention Stem Exchange Rate Pressures from Global Capital Flow Shocks? (2015)
Working Paper: Can Foreign Exchange Intervention Stem Exchange Rate Pressures from Global Capital Flow Shocks? (2015)
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