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Foreign Exchange Intervention and Exchange Rate Volatility in Peru

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Author Info
Humala, Alberto (Central Reserve Bank of Peru)
Rodríguez, Gabriel () (Central Reserve Bank of Peru and Pontificia Universidad Católica del Perú)

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Abstract

Flexible exchange rate experience in Peru has been accompanied by frequent official interventions in the form of foreign exchange purchases or sales. Monetary authority pursues reducing excess volatility in the exchange rate through its direct intervention. However, in recent years, this intervention has concentrated in US dollars purchases, apparently signaling a bias towards defending a given exchange rate level (not necessarily fixed). For the period 1994 - 2007, this document assesses consistency of the empirical evidence with the goal of reducing exchange rate volatility. Thus, it uses univariate and multivariate time series models subject to stochastic shifts to study currency pressures. Results suggest consistency with the reduced-volatility goal. Nonetheless, in line with other studies, factors such as the foreign exchange gap with respect to its trend also induce foreign exchange intervention.

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File URL: http://www.bcrp.gob.pe/docs/Publicaciones/Documentos-de-Trabajo/2009/Working-Paper-08-2009.pdf
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Publisher Info
Paper provided by Banco Central de Reserva del Perú in its series Working Papers with number 2009-008.

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Date of creation: Mar 2009
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Handle: RePEc:rbp:wpaper:2009-008

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Related research
Keywords: Foreign Exchange Intervention; Exchange Rate Volatility; Markov-Switching Models.;

Find related papers by JEL classification:
C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions
C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions
E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
F31 - International Economics - - International Finance - - - Foreign Exchange

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References listed on IDEAS
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  1. Sollis, Robert, 2008. "U.S. dollar real exchange rates: Nonlinearity revisited," Journal of International Money and Finance, Elsevier, vol. 27(4), pages 516-528, June. [Downloadable!] (restricted)
  2. Luis Carranza & Juan M. Cayo & José E. Galdón-Sánchez, 2003. "Exchange Rate Volatility and Economic Performance in Peru: A Firm Level Analysis," Faculty Working Papers 12/03, School of Economics and Business Administration, University of Navarra. [Downloadable!]
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  3. Beine, Michel & Laurent, Sebastien & Lecourt, Christelle, 2003. "Official central bank interventions and exchange rate volatility: Evidence from a regime-switching analysis," European Economic Review, Elsevier, vol. 47(5), pages 891-911, October. [Downloadable!] (restricted)
  4. Hoshikawa, Takeshi, 2008. "The effect of intervention frequency on the foreign exchange market: The Japanese experience," Journal of International Money and Finance, Elsevier, vol. 27(4), pages 547-559, June. [Downloadable!] (restricted)
  5. Markus Haas, 2004. "A New Approach to Markov-Switching GARCH Models," Journal of Financial Econometrics, Oxford University Press, vol. 2(4), pages 493-530. [Downloadable!] (restricted)
  6. Mark P. Taylor, 2004. "Is Official Exchange Rate Intervention Effective?," Economica, London School of Economics and Political Science, vol. 71, pages 1-11, 02. [Downloadable!] (restricted)
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  7. Guillermo A. Calvo & Carmen M. Reinhart, 2000. "Fear of Floating," NBER Working Papers 7993, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
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