What Prompts Central Bank Intervention in the Barbadian Foreign Exchange Market?
AbstractThe Central Bank of Barbados often intervenes – buys or sells from the foreign exchange (FX) reserves – to ensure the daily clearing of the FX market. This paper estimates an FX intervention function for Barbados using a dynamic complementary log-log model. Three general findings emerged: (i) dynamics play an important role in the Central Bank’s intervention function, meaning that the probability that an intervention takes place today is conditional upon an intervention taking place at least one day prior. This most likely reflects the fact that deficits/surpluses on the FX market tend to be persistent, resulting in intervention over a consecutive number of days; (ii) there appears to be some differences in the response of Central Bank interventions to the other key variables. Particularly, seasonal fluctuations in tourism and interest rate spreads are likely to impact the probability of a sale intervention, but don’t seem to affect the likelihood of a purchase intervention. Moreover, an influx of real estate flows is likely to increase the probability that a purchase intervention takes place, but might have limited impact on the marginal propensity of a sale intervention. Finally, (iii) ‘oil price shocks’ is the only exogenous variable which appears to impact both sale and purchase interventions.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 41703.
Date of creation: Mar 2012
Date of revision:
Publication status: Published in Central Bank of Barbados Economic Review XXXIX.1(2012): pp. 37-52
Foreign exchange; intervention; fixed exchange rate;
Find related papers by JEL classification:
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
- F31 - International Economics - - International Finance - - - Foreign Exchange
- N26 - Economic History - - Financial Markets and Institutions - - - Latin America; Caribbean
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-10-13 (All new papers)
- NEP-CBA-2012-10-13 (Central Banking)
- NEP-MAC-2012-10-13 (Macroeconomics)
- NEP-MON-2012-10-13 (Monetary Economics)
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