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Asymmetric effects of FOREX intervention using intraday data: evidence from Peru

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  • Erick Lahura
  • Marco Vega

Abstract

Asymmetric effects of Central Bank foreign exchange (forex) intervention have not been extensively studied in the literature, even though in practice Central Bank's motives for purchasing and for selling foreign currency may differ. This paper studies asymmetric effects of Central Bank interventions under the premise that policy authorities view depreciations and appreciations as having asymmetric implications. Using undisclosed intraday data for Peru from 2009 to 2011, this paper shows that Central Bank interventions in the foreign exchange market have a signifcant and asymmetric effect on interbank exchange rates. Specifically, central bank intervention is more effective in reducing the interbank exchange rate than in raising it.

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Bibliographic Info

Paper provided by Bank for International Settlements in its series BIS Working Papers with number 430.

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Length: 23 pages
Date of creation: Sep 2013
Date of revision:
Handle: RePEc:bis:biswps:430

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Keywords: exchange rate; foreign exchange market; intervention;

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References

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  1. Marcus Kappler & Helmut Reisen & Moritz Schularick & Edouard Turkisch, 2011. "The Macroeconomic Effects of Large Exchange Rate Appreciations," OECD Development Centre Working Papers, OECD Publishing 296, OECD Publishing.
  2. Adrián Armas & Francisco Grippa, 2005. "Targeting Inflation in a Dollarized Economy: The Peruvian Experience," IDB Publications 6827, Inter-American Development Bank.
  3. Levy-Yeyati, Eduardo & Sturzenegger, Federico & Gluzmann, Pablo, 2007. "Fear of Appreciation," MPRA Paper 42917, University Library of Munich, Germany, revised Nov 2012.
  4. 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, The World Bank 3288, The World Bank.
  5. Guillermo A. Calvo & Carmen M. Reinhart, 2002. "Fear Of Floating," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 117(2), pages 379-408, May.
  6. Fischer, Andreas M & Zurlinden, Mathias, 1999. "Exchange Rate Effects of Central Bank Interventions: An Analysis of Transaction Prices," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 109(458), pages 662-76, October.
  7. Matthieu Bussière & Claude Lopez & Cédric Tille, 2014. "Do Real Exchange Rate Appreciations Matter for Growth?," IHEID Working Papers, Economics Section, The Graduate Institute of International Studies 06-2014, Economics Section, The Graduate Institute of International Studies.
  8. Pasquariello, Paolo, 2007. "Informative trading or just costly noise? An analysis of Central Bank interventions," Journal of Financial Markets, Elsevier, Elsevier, vol. 10(2), pages 107-143, May.
  9. Rossini, Renzo & Quispe, Zenón & Serrano, Enrique, 2013. "Foreign Exchange Interventions in Peru," Working Papers, Banco Central de Reserva del Perú 2013-016, Banco Central de Reserva del Perú.
  10. Broto, Carmen, 2013. "The effectiveness of forex interventions in four Latin American countries," Emerging Markets Review, Elsevier, Elsevier, vol. 17(C), pages 224-240.
  11. Kathryn M. Dominguez, 1999. "The Market Microstructure of Central Bank Intervention," NBER Working Papers 7337, National Bureau of Economic Research, Inc.
  12. Rossini, Renzo & Quispe, Zenon & Rodriguez, Donita, 2011. "Capital Flows, Monetary Policy and FOREX Interventions in Peru," Working Papers, Banco Central de Reserva del Perú 2011-008, Banco Central de Reserva del Perú.
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Cited by:
  1. Ken Miyajima & Carlos Montoro, 2013. "Impact of foreign exchange interventions on exchange rate expectations," BIS Papers chapters, Bank for International Settlements, in: Bank for International Settlements (ed.), Sovereign risk: a world without risk-free assets?, volume 73, pages 39-54 Bank for International Settlements.
  2. Augusto de la Torre & Eduardo Levy Yeyati & Samuel Pienknagura, . "Latin America’s Deceleration and the Exchange Rate Buffer : LAC Semiannual Report, October 2013," World Bank Other Operational Studies 16107, The World Bank.

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