Currency Intervention: A Case Study of an Emerging Market
AbstractUsing a unique dataset on daily foreign exchange intervention and a new methodological framework of a latent factor model of central bank intervention, this paper addresses the effects of intervention in an emerging market. Events in financial markets from 2002 to 2010 provide a natural experiment to evaluate the short and medium term objectives of the central bank to contain excessive exchange rate volatility and to accumulate foreign reserves respectively. In the low volatility period in the first part of the sample, the central bank is successful in influencing the currency when pressure is to appreciate, accumulating international reserves. The same model estimated for the global volatility period in the second part of the sample shows the central bank intervening to mitigate excessive exchange rate volatility in line with the short-term objective.
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Bibliographic InfoPaper provided by Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University in its series CAMA Working Papers with number 2012-32.
Length: 31 pages
Date of creation: Jun 2012
Date of revision:
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Other versions of this item:
- Fry-McKibbin, Renée A. & Wanaguru, Sumila, 2013. "Currency intervention: A case study of an emerging market," Journal of International Money and Finance, Elsevier, vol. 37(C), pages 25-47.
- F31 - International Economics - - International Finance - - - Foreign Exchange
- F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
- F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
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.:
- Pontines, Victor & Rajan, Ramkishen S., 2011. "Foreign exchange market intervention and reserve accumulation in emerging Asia: Is there evidence of fear of appreciation?," Economics Letters, Elsevier, vol. 111(3), pages 252-255, June.
- Roberto Perrelli & Christian B. Mulder, 2001. "Foreign Currency Credit Ratings for Emerging Market Economies," IMF Working Papers 01/191, International Monetary Fund.
- Ana Maria Herrera & Pinar Ozbay, 2005. "A Dynamic Model of Central Bank Intervention," Working Papers 0501, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
- Chrismin Tang & Mardi Dungey & Vance Martin & Brenda GonzÃ¡lez-Hermosillo & Renee Fry, 2010.
"Are Financial Crises Alike?,"
IMF Working Papers
10/14, International Monetary Fund.
- Patrick Carvalho & Renee A. Fry-McKibbin, 2014. "Foreign Reserve Accumulation and the Mercantilist Motive Hypothesis," CAMA Working Papers 2014-18, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
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