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Effectiveness of intervention in a small emerging market: an event study approach

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  • Hyginus Leon
  • Oral H. Williams

Abstract

This article addresses the effectiveness of intervention using daily data from a small open economy for which intervention constituted an integral part of policy making. A matched-sample test of equality of means before and after intervention events, shows that the sterilized interventions by the central bank were effective for both purchases and sales of US dollars, but with associated fiscal costs. These results, which are robust to alternative event-window definitions and to alternative criteria for measuring ‘success’, suggest that the authorities were successful in keeping the exchange rate within a ‘target’ corridor. With many small emerging market economies seeking to balance the twin objectives of maintaining competitiveness while containing imported inflation, these results present an interesting case study which suggests that intervention can be an appropriate policy tool in some small open and emerging market economies.

Suggested Citation

  • Hyginus Leon & Oral H. Williams, 2012. "Effectiveness of intervention in a small emerging market: an event study approach," Applied Financial Economics, Taylor & Francis Journals, vol. 22(21), pages 1811-1820, November.
  • Handle: RePEc:taf:apfiec:v:22:y:2012:i:21:p:1811-1820
    DOI: 10.1080/09603107.2012.681024
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    References listed on IDEAS

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    1. Jayasri Dutta, 2002. "Dread of Depreciation; Measuring Real Exchange Rate Interventions," IMF Working Papers 02/63, International Monetary Fund.
    2. Takatoshi Ito, 2003. "Is foreign exchange intervention effective? The Japanese experiences in the 1990s," Chapters,in: Monetary History, Exchange Rates and Financial Markets, chapter 5 Edward Elgar Publishing.
    3. Christopher J. Neely, 2005. "An analysis of recent studies of the effect of foreign exchange intervention," Review, Federal Reserve Bank of St. Louis, issue Nov, pages 685-718.
    4. Herman Kamil, 2008. "Is Central Bank Intervention Effective Under Inflation Targeting Regimes? The Case of Colombia," IMF Working Papers 08/88, International Monetary Fund.
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    1. repec:lrc:lareco:v:5:y:2017:i:5:p:12-17 is not listed on IDEAS
    2. repec:ksp:journ5:v:4:y:2017:i:1:p:1-8 is not listed on IDEAS
    3. Zhang, Zhichao & Li, He & Zhang, Chuanjie, 2017. "Oral intervention in China: Efficacy of Chinese exchange rate communications," International Review of Financial Analysis, Elsevier, vol. 49(C), pages 24-34.

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