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On Central Bank Interventions in the Mexican Peso/Dollar Foreign Exchange Market

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  • García-Verdú Santiago
  • Zerecero Miguel

Abstract

In recent years the Bank of Mexico has made a series of rules-based interventions in the peso/dollar foreign exchange market. We assess the effectiveness of two specific interventions. These were the "Dollar auctions with minimum price", active between October 2008 and April 2010, and the "Dollar auctions without minimum price", implemented from March to September, 2009. Broadly speaking, the aims of these two interventions were, respectively, to provide liquidity and to promote orderly conditions in the foreign exchange market. For our analysis, we follow the framework implemented by Dominguez (2003) and Dominguez (2006), an event study microstructure approach. We use the bid-ask spreads as a measure of liquidity and, also, of orderly conditions. In general, our results show no indication of an effect in the bid-ask spread for the first intervention, and are fairly conclusive regarding a significant reduction in it for the second intervention, yet, it is important to consider the limitations of our estimation methodology.

Suggested Citation

  • García-Verdú Santiago & Zerecero Miguel, 2014. "On Central Bank Interventions in the Mexican Peso/Dollar Foreign Exchange Market," Working Papers 2014-19, Banco de México.
    • Handle: RePEc:bdm:wpaper:2014-19
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    7. 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.
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    11. José Julián Sidaoui, 2005. "Central banking intervention under a floating exchange rate regime: ten years of Mexican experience," BIS Papers chapters, in: Bank for International Settlements (ed.), Foreign exchange market intervention in emerging markets: motives, techniques and implications, volume 24, pages 209-30, Bank for International Settlements.
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    Cited by:

    1. Jurado Pedroza Wilfrido, 2021. "Around-the-Clock USD/MXN Volatility: Macroeconomic Announcement Spillovers and FX Market Intervention Mechanisms," Working Papers 2021-05, Banco de México.
    2. Jara, Alejandro & Piña, Marco, 2023. "Exchange rate volatility and the effectiveness of FX interventions: The case of Chile," Latin American Journal of Central Banking (previously Monetaria), Elsevier, vol. 4(2).
    3. Соломія Бричка & Денис Клиновський & Дмитро Круковець & Артем Огарков, 2019. "Мета-аналіз: ефект fx-інтервенцій на валютний курс," Suchasni ekonomichni doslidzhennja, Kyiv School of Economics, vol. 2(1), pages 24-47.
    4. Martinez, Valeria & Tse, Yiuman, 2018. "Intraday price discovery analysis in the foreign exchange market of an emerging economy: Mexico," Research in International Business and Finance, Elsevier, vol. 45(C), pages 271-284.
    5. Augusto de la Torre & Eduardo Levy Yeyati & Samuel Pienknagura, "undated". "Latin America’s Deceleration and the Exchange Rate Buffer : LAC Semiannual Report, October 2013," World Bank Publications - Reports 16107, The World Bank Group.
    6. Eduardo Levy Yeyati & Jimena Zuniga, 2015. "Varieties of Capital Flows: What Do We Know?," CID Working Papers 296, Center for International Development at Harvard University.
    7. Nuttathum Chutasripanich & James Yetman, 2015. "Foreign exchange intervention: strategies and effectiveness," BIS Working Papers 499, Bank for International Settlements.
    8. Tobal Martín & Yslas Renato, 2016. "Two Models of FX Market Interventions: The Cases of Brazil and Mexico," Working Papers 2016-14, Banco de México.
    9. Solomiia Brychka & Denys Klynovskyi & Dmytro Krukovets & Artem Oharkov, 2019. "Meta-Analysis: Meta-Analysis: Effect of FX interventions on the exchange rate," Modern Economic Studies, Kyiv School of Economics, vol. 2(1), pages 24-44.
    10. Alejandro Jara & Marco Piña, 2022. "Exchange rate volatility and the effectiveness of FX interventions: the case of Chile," Working Papers Central Bank of Chile 962, Central Bank of Chile.

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    More about this item

    Keywords

    foreign exchange rate; central bank interventions; microstructure;
    All these keywords.

    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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