Advanced Search
MyIDEAS: Login

The effectiveness of forex interventions in four latin american countries

Contents:

Author Info

  • Carmen Broto

    () (Banco de España)

Abstract

Many central banks actively intervene in the foreign exchange (forex) market, although there is no consensus on its impact on the exchange rate level and volatility. We analyze the effects of daily forex interventions in four Latin American countries with inflation targets — namely, Chile, Colombia, Mexico and Peru — by fitting GARCH-type models. These countries represent a broad span of intervention strategies in terms of size and frequency, ranging from pure discretionality to intervention rules. We also provide new evidence on the presence of asymmetries, which arise if foreign currency purchases and sales have different effects on the exchange rate. We find that first interventions, either isolated or initial in a rule, reduce exchange rate volatility, although their size plays a minor role. Our results support the signaling effect of interventions under inflation targeting regimes

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.bde.es/webbde/SES/Secciones/Publicaciones/PublicacionesSeriadas/DocumentosTrabajo/12/Fich/dt1226e.pdf
File Function: First version, July 2012
Download Restriction: no

Bibliographic Info

Paper provided by Banco de España in its series Banco de España Working Papers with number 1226.

as in new window
Length: 42 pages
Date of creation: Jul 2012
Date of revision:
Handle: RePEc:bde:wpaper:1226

Contact details of provider:
Email:
Web page: http://www.bde.es/
More information through EDIRC

Related research

Keywords: Exchange rate volatility; Foreign exchange interventions; GARCH;

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Neely, Christopher J., 2008. "Central bank authorities' beliefs about foreign exchange intervention," Journal of International Money and Finance, Elsevier, vol. 27(1), pages 1-25, February.
  2. Kim, Suk-Joong & Sheen, Jeffrey, 2006. "Interventions in the Yen-dollar spot market: A story of price, volatility and volume," Journal of Banking & Finance, Elsevier, vol. 30(11), pages 3191-3214, November.
  3. Dominguez, Kathryn M., 1998. "Central bank intervention and exchange rate volatility1," Journal of International Money and Finance, Elsevier, vol. 17(1), pages 161-190, February.
  4. Hong Liang & Paul Cashin & Hali J. Edison, 2003. "Foreign Exchange Intervention and the Australian Dollar: Has it Mattered?," IMF Working Papers 03/99, International Monetary Fund.
  5. Humpage, Owen F., 2000. "The United States as an informed foreign-exchange speculator," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 10(3-4), pages 287-302, December.
  6. Hoshikawa, Takeshi, 2008. "The effect of intervention frequency on the foreign exchange market: The Japanese experience," Journal of International Money and Finance, Elsevier, vol. 27(4), pages 547-559, June.
  7. Alberto Humala & Gabriel Rodriguez, 2010. "Foreign exchange intervention and exchange rate volatility in Peru," Applied Economics Letters, Taylor and Francis Journals, vol. 17(15), pages 1485-1491.
  8. Christopher J. Neely, 2001. "The practice of central bank intervention: looking under the hood," Review, Federal Reserve Bank of St. Louis, issue May, pages 1-10.
  9. Domac, Ilker & Mendoza, Alfonso, 2004. "Is there room for foreign exchange interventions under an inflation targeting framework ? Evidence from Mexico and Turkey," Policy Research Working Paper Series 3288, The World Bank.
  10. Christopher J. Neely, 2005. "An analysis of recent studies of the effect of foreign exchange intervention," Review, Federal Reserve Bank of St. Louis, issue Nov, pages 685-718.
  11. Kim, Suk-Joong & Kortian, Tro & Sheen, Jeffrey, 2000. "Central bank intervention and exchange rate volatility -- Australian evidence," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 10(3-4), pages 381-405, December.
  12. Beine, Michel & Janssen, Gust & Lecourt, Christelle, 2009. "Should central bankers talk to the foreign exchange markets?," Journal of International Money and Finance, Elsevier, vol. 28(5), pages 776-803, September.
  13. Eric Hillebrand & Gunther Schnabl, 2006. "A structural break in the effects of Japanese foreign exchange intervention on yen/dollar exchange rate volatility," Working Paper Series 650, European Central Bank.
  14. Berganza, Juan Carlos & Broto, Carmen, 2011. "Flexible inflation targets, forex interventions and exchange rate volatility in emerging countries," BOFIT Discussion Papers 9/2011, Bank of Finland, Institute for Economies in Transition.
  15. Frenkel, Michael & Pierdzioch, Christian & Stadtmann, Georg, 2005. "The effects of Japanese foreign exchange market interventions on the yen/U.S. dollar exchange rate volatility," International Review of Economics & Finance, Elsevier, vol. 14(1), pages 27-39.
  16. Baillie, Richard T. & Osterberg, William P., 1997. "Why do central banks intervene?," Journal of International Money and Finance, Elsevier, vol. 16(6), pages 909-919, December.
  17. Jurgen A. Doornik & Marius Ooms, 2003. "Multimodality in the GARCH Regression Model," Economics Papers 2003-W20, Economics Group, Nuffield College, University of Oxford.
  18. Christelle Lecourt & Helene Raymond, 2006. "Central bank interventions in industrialized countries: a characterization based on survey results," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 11(2), pages 123-138.
  19. Carnero, María Ángeles & Peña, Daniel & Ruiz, Esther, . "Effects of outliers on the identification and estimation of GARCH models," Open Access publications from Universidad Carlos III de Madrid info:hdl:10016/4742, Universidad Carlos III de Madrid.
  20. Harvey, Andrew & Ruiz, Esther & Shephard, Neil, 1994. "Multivariate Stochastic Variance Models," Review of Economic Studies, Wiley Blackwell, vol. 61(2), pages 247-64, April.
  21. Kim, Suk-Joong & Sheen, Jeffrey, 2002. "The determinants of foreign exchange intervention by central banks: evidence from Australia," Journal of International Money and Finance, Elsevier, vol. 21(5), pages 619-649, October.
  22. Disyatat, Piti & Galati, Gabriele, 2007. "The effectiveness of foreign exchange intervention in emerging market countries: Evidence from the Czech koruna," Journal of International Money and Finance, Elsevier, vol. 26(3), pages 383-402, April.
  23. International Monetary Fund, 2011. "Foreign Exchange Intervention: A Shield Against Appreciation Winds?," IMF Working Papers 11/165, International Monetary Fund.
Full references (including those not matched with items on IDEAS)

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:bde:wpaper:1226

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (María Beiro. Electronic Dissemination of Information Unit. Research Department. Banco de España).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.