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Official Intervention in the Foreign Exchange Market

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Author Info

  • Jorge Iván Canales Kriljenko
  • Cem Karacadag
  • Roberto Pereira Guimarães
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    Abstract

    This paper offers guidance on the operational aspects of official intervention in the foreign exchange market, particularly in developing countries with flexible exchange rate regimes. A brief survey of the literature and country experience is followed by an analysis of the objectives, timing, amount, degree of transparency, and choice of markets and counterparties in conducting intervention. The analysis highlights the difficulty of detecting exchange rate misalignments and disorderly markets, and argues in favor of parsimony in official intervention. Determining the timing and amount of intervention is a highly subjective excercise, and some degree of discretion is almost necessary, though policy rules may serve as "rules of thumb."

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 03/152.

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    Length: 41
    Date of creation: 01 Jul 2003
    Date of revision:
    Handle: RePEc:imf:imfwpa:03/152

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    Related research

    Keywords: Intervention; exchange rate; central bank; foreign exchange; central banks; foreign exchange market; exchange rates; exchange rate volatility; reserve bank; foreign exchange operations; exchange operations; exchange rate regimes; flexible exchange rate; reserve accumulation; exchange markets; foreign exchange markets; exchange controls; balance of payments; flexible exchange rate regimes; exchange rate policy; domestic currency; exchange rate policies; exchange rate regime; external liquidity; exchange rate misalignment; exchange rate expectations; exchange rate movements; currency debt; foreign exchange swaps; exchange rate fluctuations; exchange rate level; exchange purchases; foreign exchange purchases; exchange swaps; exchange arrangements; foreign exchange controls; foreign exchange reserves; foreign currency debt; exchange rate target; exchange rate pressures; floating exchange rate; exchange market exchange rate misalignments; exchange rate changes; exchange reserves; exchange rate risk; exchange rate flexibility; exchange rate determination; currency composition; real exchange rate; currency markets; external borrowing; exchange rate overvaluation; exchange rate levels; repayment capacity; exchange restrictions; exchange rate adjustment; currency appreciation; currency crisis; flexible exchange rate regime; floating exchange rate regimes; exchange rate depreciation; currency crises; spot exchange rate; foreign exchange transactions; foreign currency debts; real exchange rate overvaluation; currency basket; foreign exchange auctions; floating exchange rate regime; short-term debt; exchange rate currency sales; real effective exchange rates; exchange transactions; exchange rate dynamics; effective exchange rate; exchange rate guarantee; currency debts; surveillance over exchange rate policies; effective exchange rates; undervalued exchange rate; external shocks; equilibrium exchange rate; public sector debt; exchange rate volatilities; exchange rate arrangements; currency exchange; exchange auctions; real effective exchange rate; multiple exchange rate; currency exchange rates; exchange rate instability; exchange rate need; exchange rate risks; implicit exchange rate guarantee; exchange rate losses; currency depreciation; exchange rate management; reserve currencies; current account; exchange sales; flexible exchange rates; repayment capacities; foreign exchange earnings; foreign exchange sales; exchange earnings;

    References

    References listed on IDEAS
    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.:
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    19. repec:imf:imfwpa:01/43 is not listed on IDEAS
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    Citations

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    Cited by:
    1. Balázs Égert & Maroje Lang, 2005. "Foreign Exchange Interventions in Croatia and Turkey: Should We Give a Damn?," William Davidson Institute Working Papers Series wp755, William Davidson Institute at the University of Michigan.
    2. Tomas Holub, 2004. "Foreign Exchange Interventions Under Inflation Targeting: The Czech Experience," Research and Policy Notes 2004/01, Czech National Bank, Research Department.
    3. José Darío Uribe & Jorge Toro, 2005. "Foreign exchange market intervention in Colombia," BIS Papers chapters, in: Bank for International Settlements (ed.), Foreign exchange market intervention in emerging markets: motives, techniques and implications, volume 24, pages 139-49 Bank for International Settlements.
    4. Cem Karacadag & Roberto Pereira Guimarães, 2004. "The Empirics of Foreign Exchange Intervention in Emerging Markets," IMF Working Papers 04/123, International Monetary Fund.
    5. Kim, Suk-Joong, 2007. "Intraday evidence of efficacy of 1991-2004 Yen intervention by the Bank of Japan," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 17(4), pages 341-360, October.
    6. Levent Korap, 2006. "An Analysis of Central Bank Interventions on Forex Market For The Post-Crisis Period," Working Papers 2006/4, Turkish Economic Association.
    7. Sideris, Dimitrios A., 2008. "Foreign exchange intervention and equilibrium real exchange rates," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 18(4), pages 344-357, October.
    8. Gabriele Galati & Piti Disyatat, 2005. "The effectiveness of foreign exchange intervention in emerging market countries: evidence from the Czech koruna," BIS Working Papers 172, Bank for International Settlements.
    9. Gilda Fernandez & Cem Karacadag & Rupa Duttagupta, 2004. "From Fixed to Float," IMF Working Papers 04/126, International Monetary Fund.
    10. Roberto Guimaraes & Cem Karacadag, 2005. "The Empirics of Foreign Exchange Intervention in Emerging Market Countries The Cases of Mexico and Turkey," Money Macro and Finance (MMF) Research Group Conference 2005 68, Money Macro and Finance Research Group.
    11. Faruk Selçuk, 2005. "The Policy Challenge with Floating Exchange Rates: Turkey’s Recent Experience," Open Economies Review, Springer, vol. 16(3), pages 295-312, July.
    12. David Archer, 2005. "Foreign exchange market intervention: methods and tactics," BIS Papers chapters, in: Bank for International Settlements (ed.), Foreign exchange market intervention in emerging markets: motives, techniques and implications, volume 24, pages 40-55 Bank for International Settlements.
    13. Piti Disyatat & Gabriele Galati, 2005. "The effectiveness of foreign exchange intervention in emerging market countries," BIS Papers chapters, in: Bank for International Settlements (ed.), Foreign exchange market intervention in emerging markets: motives, techniques and implications, volume 24, pages 97-113 Bank for International Settlements.
    14. Ewe-Ghee Lim, 2006. "The Euro's Challenge to the Dollar," IMF Working Papers 06/153, International Monetary Fund.
    15. Kiss M., Norbert, 2005. "A jegybanki devizapiaci intervenció hatékonysága. Nemzetközi tapasztalatok és elméleti megfontolások
      [Effectiveness of central-bank intervention on foreign-exchange markets. International ex
      ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(11), pages 846-872.
    16. Tomas Holub, 2005. "Forex interventions: the Czech experience," BIS Papers chapters, in: Bank for International Settlements (ed.), Foreign exchange market intervention in emerging markets: motives, techniques and implications, volume 24, pages 150-61 Bank for International Settlements.

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