The Relative Effectiveness of Spot and Derivatives Based Intervention: The Case of Brazil

Milan Nedeljkovic and Christian Saborowski

No 2017/011, IMF Working Papers from International Monetary Fund

Abstract: This paper studies the relative effectiveness of foreign exchange intervention in spot and derivatives markets. We make use of Brazilian data where spot and non-deliverable futures based intervention have been used in tandem for more than a decade. The analysis finds evidence in favor of a significant link between both modes of intervention and the first two moments of the real/dollar exchange rate. As predicted by theory for the case of negligible convertibility risk, the impact of spot market intervention in our baseline sample is strikingly similar to that achieved through futures based intervention worth an equivalent amount in notional principal.

Keywords: WP; futures intervention; futures contract; intervention; dollar; FX Intervention; Derivatives; Exchange rates; spot intervention; intervention variable; FX futures; long-dollar futures intervention; dollar position; forward market; futures intervention need; Futures; Currency swaps; Exchange rate adjustments; Global (search for similar items in EconPapers)
Pages: 35
Date: 2017-01-24
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Citations: View citations in EconPapers (5)

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