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Foreign exchange interventions in Brazil and their impact on volatility: A quantile regression approach

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  • Viola, Alessandra Pasqualina
  • Klotzle, Marcelo Cabus
  • Pinto, Antonio Carlos Figueiredo
  • da Silveira Barbedo, Claudio Henrique

Abstract

This work aims to analyze the interventions conducted by the Central Bank of Brazil in the Brazilian foreign exchange market from 2003 to 2014. For this purpose, we use quantile regression analysis and some of its new formulas to examine the effects of government interventions on exchange rate volatility. In particular, we apply quantile regression with instrumental variables to address the existing endogeneity problem. The results differ when using daily interventions versus the net accumulated position as explanatory variables. The findings illuminate a new way to analyze data that do not have completely random behavior and demonstrate different impacts (slope coefficients) of the exchange rate interventions along the distribution on exchange rate volatility.

Suggested Citation

  • Viola, Alessandra Pasqualina & Klotzle, Marcelo Cabus & Pinto, Antonio Carlos Figueiredo & da Silveira Barbedo, Claudio Henrique, 2019. "Foreign exchange interventions in Brazil and their impact on volatility: A quantile regression approach," Research in International Business and Finance, Elsevier, vol. 47(C), pages 251-263.
    • Handle: RePEc:eee:riibaf:v:47:y:2019:i:c:p:251-263
    DOI: 10.1016/j.ribaf.2018.08.002
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    Cited by:

    1. Corbet, Shaen & Dunne, John James & Larkin, Charles, 2019. "Quantitative easing announcements and high-frequency stock market volatility: Evidence from the United States," Research in International Business and Finance, Elsevier, vol. 48(C), pages 321-334.
    2. Jorge Arenas & Stephany Griffith-Jones, 2023. "Effectiveness of Foreign Exchange Interventions: Evidence and Lessons from Chile," Working Papers Central Bank of Chile 983, Central Bank of Chile.
    3. Michael Frömmel & Eyup Kadioglu, 2023. "Impact of trading hours extensions on foreign exchange volatility: intraday evidence from the Moscow exchange," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 9(1), pages 1-23, December.
    4. Wen, Tiange & Wang, Gang-Jin, 2020. "Volatility connectedness in global foreign exchange markets," Journal of Multinational Financial Management, Elsevier, vol. 54(C).
    5. Jorge Arenas & Stephany Griffith-Jones, 2023. "Effectiveness of Foreign Exchange Interventions Evidence and Lessons from Chile," Working Papers wp546, University of Chile, Department of Economics.
    6. Jara, Alejandro & Piña, Marco, 2023. "Exchange rate volatility and the effectiveness of FX interventions: The case of Chile," Latin American Journal of Central Banking (previously Monetaria), Elsevier, vol. 4(2).
    7. Alejandro Jara & Marco Piña, 2022. "Exchange rate volatility and the effectiveness of FX interventions: the case of Chile," Working Papers Central Bank of Chile 962, Central Bank of Chile.

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    More about this item

    Keywords

    Foreign exchange intervention; Quantile regression; Volatility; Endogeneity; Foreign exchange market; GARCH;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • 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

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