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The effectiveness of forex interventions in four Latin American countries

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  • Broto, Carmen

Abstract

Many central banks actively intervene in the forex market, although there is no consensus on its impact on the exchange rate level and volatility. We analyze the effects of daily forex interventions in four Latin American economies with inflation targets – namely, Chile, Colombia, Mexico and Peru – by fitting GARCH-type models. These countries represent a broad span of intervention strategies in terms of size and frequency, ranging from pure discretional to rule-based interventions. We find that only first interventions, either isolated or the initial one in a rule-based series, are able to reduce exchange rate volatility, whereas their size plays a minor role.

Suggested Citation

  • Broto, Carmen, 2013. "The effectiveness of forex interventions in four Latin American countries," Emerging Markets Review, Elsevier, vol. 17(C), pages 224-240.
    • Handle: RePEc:eee:ememar:v:17:y:2013:i:c:p:224-240
    DOI: 10.1016/j.ememar.2013.03.003
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    More about this item

    Keywords

    Exchange rate volatility; Foreign exchange interventions; GARCH;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • C54 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Quantitative Policy Modeling

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