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

Olivier Blanchard, Gustavo Adler and Irineu de Carvalho Filho

No 21427, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: F31 F38 F41 (search for similar items in EconPapers)
Date: 2015-07
New Economics Papers: this item is included in nep-cba, nep-ifn, nep-mon and nep-opm
Note: EFG IFM
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (125)

Published as Olivier Blanchard & Gustavo Adler & Irineu Carvalho Filho, 2015. "Can Foreign Exchange Intervention Stem Exchange Rate Pressures from Global Capital Flow Shocks?," IMF Working Papers, vol 15(159).

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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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