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The Impact of Different Types of Foreign Exchange Intervention: An Event Study Approach

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  • Juan José Echavarría

    ()

  • Luis Fernando Melo Velandia

    ()

  • Mauricio Villamizar

    ()

Abstract

To date, there is still great controversy as to which exchange rate model should be used or which monetary channel should be considered, when measuring the effects of monetary policy. Since most of the literature relies on structural models to address identification problems, the validity of results largely turn on how accurate the assumptions are in describing the full extent of the economy. In this paper we compare the effect of different types of central bank interventions using an event study approach for the Colombian case during the period 2000-2012, without imposing restrictive parametric assumptions or without the need to adopt a structural model. We find that all types of interventions (international reserve accumulation options, volatility options and discretionary) have been successful according to the smoothing criterion. In particular, volatility options seemed to have the strongest effect. We find that results are robust when using different windows sizes and counterfactuals.

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Bibliographic Info

Paper provided by Banco de la Republica de Colombia in its series Borradores de Economia with number 784.

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Length: 19
Date of creation: Oct 2013
Date of revision:
Handle: RePEc:bdr:borrec:784

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Related research

Keywords: Central bank intervention; foreign exchange intervention mechanisms; event study. Classification JEL: E52; E58; F31.;

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  1. Lawrence J. Christiano & Mathias Trabandt & Karl Walentin, 2010. "DSGE models for monetary policy analysis," CQER Working Paper, Federal Reserve Bank of Atlanta 2010-02, Federal Reserve Bank of Atlanta.
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Cited by:
  1. Hernando Vargas Herrera & Andrés González & Diego Rodríguez, 2013. "Foreign Exchange Intervention in Colombia," BORRADORES DE ECONOMIA 010465, BANCO DE LA REPÚBLICA.

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