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Foreign Exchange Intervention

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  • International Monetary Fund

Abstract

This paper examines foreign exchange intervention practices and their effectiveness using a new qualitative and quantitative database for a panel of 15 economies covering 2004 - 10, with special focus on Latin America. Qualitatively, it examines institutional aspects such as declared motives, instruments employed, the use of rules versus discretion, and the degree of transparency. Quantitatively, it assesses the effectiveness of sterilized interventions in influencing the exchange rate using a two-stage IV-panel data approach to overcome endogeneity bias. Results suggest that interventions slow the pace of appreciation, but the effects decrease rapidly with the degree of capital account openness. At the same time, interventions are more effective in the context of already ?overvalued'' exchange rates.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 11/165.

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Length: 29
Date of creation: 01 Jul 2011
Date of revision:
Handle: RePEc:imf:imfwpa:11/165

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Keywords: Exchange rates; Latin America; imported inputs; intermediate goods; sovereign default; debt ratio; sovereign debt; debt ratios; net exports; sovereign defaults; market equilibrium; elasticity of substitution; repayments; partial equilibrium; external debt; sovereign bonds; equilibrium model; open economy; debt crisis; debt renegotiation; imported intermediate; factor markets; sovereign bond; debt crises; international trade; intermediate inputs; transport equipment; foreign debt; competitive markets; debt policy; world markets; debt renegotiations; political economy; sovereign borrower; perfect substitutes; public debt; trade deficit; debt service; low debt ratio; debt restructuring; sovereign debt renegotiations; private credit; tariff cuts; open economies; debt data; current account; volume of trade; factor shares; imported intermediates; trade protection; public borrowing; trade imbalances; debt obligations; aggregate demand; import substitution policies; reserve bank; trade liberalization; debt defaults; low debt; exogenous shock; zero profits; public external debt; actual debt; debt contracts; domestic firms; central banks; debt intolerance; trade policies; import substitution; sovereign debt crises; debt maturity; net debt; domestic economy; private debts; bilateral trade;

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References

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  1. Matías Tapia & Andrea Tokman, 2004. "Effects of Foreign Exchange Intervention Under Public Information: the Chilean Case," Working Papers Central Bank of Chile, Central Bank of Chile 255, Central Bank of Chile.
  2. Hernán Rincón & Jorge Toro, . "Are Capital Controls and Central Bank Intervention Effective?," Borradores de Economia 625, Banco de la Republica de Colombia.
  3. Sarno, Lucio & Taylor, Mark P, 2001. "Official Intervention in the Foreign Exchange Market: Is It Effective, and, If So, How Does It Work?," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2690, C.E.P.R. Discussion Papers.
  4. Ostry, Jonathan D., 2012. "Managing Capital Flows: What Tools to Use?," Asian Development Review, Asian Development Bank, Asian Development Bank, vol. 29(1), pages 83-89.
  5. Jonathan David Ostry & Atish R. Ghosh & Karl Friedrich Habermeier & Luc Laeven & Marcos Chamon & Mahvash Saeed Qureshi & Annamaria Kokenyne, 2011. "Managing Capital Inflows," IMF Staff Discussion Notes 11/06, International Monetary Fund.
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Citations

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Cited by:
  1. Steiner, Andreas, 2013. "The accumulation of foreign exchange by central banks: Fear of capital mobility?," Journal of Macroeconomics, Elsevier, Elsevier, vol. 38(PB), pages 409-427.
  2. Willy Chetwin & Tim Ng & Daan Steenkamp, 2013. "New Zealand’s short- and medium-term real exchange rate volatility: drivers and policy implications," Reserve Bank of New Zealand Analytical Notes series, Reserve Bank of New Zealand AN2013/03, Reserve Bank of New Zealand.
  3. Olivier Jeanne, . "Capital Account Policies and the Real Exchange Rate," Working Paper Series, Peterson Institute for International Economics WP12-14, Peterson Institute for International Economics.
  4. 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.
  5. Miguel Urrutia & Marc Hofstetter & Franz Hamann, 2014. "Inflation Targeting in Colombia, 2002-2012," IDB Publications 84274, Inter-American Development Bank.
  6. Gabriela Contreras M. & Alfredo Pistelli M. & Camila Sáez M., 2013. "Efecto de Intervenciones Cambiarias Recientes en Economías Emergentes," Notas de Investigación Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, Central Bank of Chile, vol. 16(1), pages 122-137, April.
  7. Menkhoff, Lukas, 2012. "Foreign Exchange Intervention in Emerging Markets: A Survey of Empirical Studies," Hannover Economic Papers (HEP), Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät dp-498, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
  8. Renee Fry-McKibbin & Sumila Wanaguru, 2012. "Currency Intervention: A Case Study of an Emerging Market," CAMA Working Papers 2012-32, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  9. Moura, Marcelo L. & Pereira, Fatima R. & Attuy, Guilherme de Moraes, 2013. "Currency Wars in Action: How Foreign Exchange Interventions Work in an Emerging Economy," Insper Working Papers, Insper Working Paper, Insper Instituto de Ensino e Pesquisa wpe_304, Insper Working Paper, Insper Instituto de Ensino e Pesquisa.
  10. Carmen Broto, 2012. "The effectiveness of forex interventions in four Latin American countries," Banco de Espa�a Working Papers 1226, Banco de Espa�a.
  11. Camilo Ernesto Tovar Mora & Pedro Castro & Gustavo Adler, 2012. "Does Central Bank Capital Matter for Monetary Policy?," IMF Working Papers 12/60, International Monetary Fund.
  12. 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.
  13. Luis Felipe Céspedes & Andrés Velasco, 2012. "Macroeconomic Performance During Commodity Price Booms and Busts," NBER Working Papers 18569, National Bureau of Economic Research, Inc.

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