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The Relative Effectiveness of Spot and Derivatives‐Based Intervention

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  • MILAN NEDELJKOVIC
  • CHRISTIAN SABOROWSKI

Abstract

This paper studies the relative effectiveness of foreign exchange intervention in spot and derivatives markets. We use Brazilian data where spot and nondeliverable futures intervention have been used in tandem for more than a decade. The analysis finds evidence of a link between both modes of intervention and the exchange rate. In line with theory, the impact of spot intervention is strikingly similar to that of futures intervention when convertibility risk is limited. We show that both types of interventions also affect the level and the price of hedging risk in the foreign exchange market.

Suggested Citation

  • Milan Nedeljkovic & Christian Saborowski, 2019. "The Relative Effectiveness of Spot and Derivatives‐Based Intervention," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 51(6), pages 1455-1490, September.
  • Handle: RePEc:wly:jmoncb:v:51:y:2019:i:6:p:1455-1490
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    File URL: https://doi.org/10.1111/jmcb.12594
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    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General

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