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.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
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)
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.:
- Baillie, Richard T. & Osterberg, William P., 1997. "Why do central banks intervene?," Journal of International Money and Finance, Elsevier, vol. 16(6), pages 909-919, December.
- Ito, Takatoshi & Yabu, Tomoyoshi, 2007.
"What prompts Japan to intervene in the Forex market? A new approach to a reaction function,"
Journal of International Money and Finance,
Elsevier, vol. 26(2), pages 193-212, March.
- Takatoshi Ito & Tomoyoshi Yabu, 2004. "What Prompts Japan to Intervene in the Forex Market? A New Approach to a Reaction Function," NBER Working Papers 10456, National Bureau of Economic Research, Inc.
- Moore, Alvon, 2011. "Demand elasticity of oil in Barbados," Energy Policy, Elsevier, vol. 39(6), pages 3515-3519, June.
- Mahalia Jackman, 2012. "Foreign exchange intervention in a small open economy with a long term peg," Economics Bulletin, AccessEcon, vol. 32(3), pages 2207-2219.
- DeLisle Worrell & Roland Craigwell & Travis Mitchell, 2008. "The behaviour of a small foreign exchange market with a long-term peg-Barbados," Applied Financial Economics, Taylor and Francis Journals, vol. 18(8), pages 673-682.
- Almekinders, G.J. & Eijffinger, S.C.W., 1994.
"Daily Bundesbank and federal reserve interventions: Are they a reaction to changes in the level and volatility of the DM/$-rate?,"
Open Access publications from Tilburg University
urn:nbn:nl:ui:12-152910, Tilburg University.
- Almekinders, Geert J & Eijffinger, Sylvester C W, 1994. "Daily Bundesbank and Federal Reserve Interventions: Are They a Reaction to Changes in the Level and Volatility of the DM/$-Rate?," Empirical Economics, Springer, vol. 19(1), pages 111-30.
- Mahalia Jackman & Roland Craigwell & Michelle Doyle-Lowe, 2013. "Nonlinearity in the reaction of the foreign exchange market to interest rate differentials: evidence from a small open economy with a long-term peg," Applied Financial Economics, Taylor and Francis Journals, vol. 23(4), pages 287-296, February.
- Kim, Suk-Joong & Sheen, Jeffrey, 2002. "The determinants of foreign exchange intervention by central banks: evidence from Australia," Journal of International Money and Finance, Elsevier, vol. 21(5), pages 619-649, October.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht).
If references are entirely missing, you can add them using this form.