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Oral FX Interventions in Emerging Markets: the Colombian case

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  • Julian A. Parra-Polania
  • Andrés Sánchez-Jabba
  • Miguel Sarmiento

Abstract

Do oral FX interventions (i.e. announcements made by central bank officials and economic authorities) influence the exchange rate behavior in emerging economies? Following an event study approach, we evaluate whether this type of interventions in the Colombian FX market have an impact on the level or volatility of the exchange rate (U.S Dollar / Colombian peso). We find there is no conclusive evidence of a statistically significant impact. This finding consistently arises across different subsamples and parameters. Robustness tests based on the exchange rate authority that makes the announcement or the mechanism used for actual interventions yield the same conclusion. We interpret these findings as possible evidence of the fact that higher levels of uncertainty (and hence lower credibility levels) or the predominance of global over domestic factors may reduce the effectiveness of oral interventions in emerging economies. **** RESUMEN: ¿Tienen las intervenciones cambiarias orales (i. e. anuncios cambiarios hechos por autoridades del banco central u otras autoridades económicas) influencia sobre el comportamiento de la tasa de cambio en las economías emergentes? Aplicando métodos de estudio de eventos, examinamos si este tipo de intervenciones, en el mercado cambiario colombiano, tienen algún impacto sobre el nivel o la volatilidad de la tasa de cambio (dólar de EEUU versus peso colombiano). Encontramos que no hay evidencia robusta de que exista un impacto estadísticamente significativo. Este resultado surge de forma consistente en todas las sub-muestras y parámetros analizados. Adicionalmente, llevamos a cabo pruebas de robustez diferenciando las autoridades que hacen los anuncios o los mecanismos usados para las intervenciones materiales y encontramos que la conclusión se mantiene. Interpretamos estos resultados como posible evidencia de que mayores niveles de incertidumbre (y los consecuentes menores niveles de credibilidad) o la predominancia de los factores globales sobre los domésticos puedan reducir la efectividad de las intervenciones orales en las economías emergentes.

Suggested Citation

  • Julian A. Parra-Polania & Andrés Sánchez-Jabba & Miguel Sarmiento, 2022. "Oral FX Interventions in Emerging Markets: the Colombian case," Borradores de Economia 1194, Banco de la Republica de Colombia.
    • Handle: RePEc:bdr:borrec:1194
    DOI: 10.32468/be.1194
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    More about this item

    Keywords

    Oral intervention; exchange rate; communication; event study; Emerging Economies; intervención oral; tasa de cambio; comunicación; estudio de eventos; economías emergentes;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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