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The effectiveness of forex interventions in four Latin American countries

  • Carmen Broto

    ()

    (Banco de España)

Many central banks actively intervene in the foreign exchange (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 countries 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 discretionality to intervention rules. We also provide new evidence on the presence of asymmetries, which arise if foreign currency purchases and sales have different effects on the exchange rate. We find that first interventions, either isolated or initial in a rule, reduce exchange rate volatility, although their size plays a minor role. Our results support the signaling effect of interventions under inflation targeting regimes

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File URL: http://www.bde.es/f/webbde/SES/Secciones/Publicaciones/PublicacionesSeriadas/DocumentosTrabajo/12/Fich/dt1226e.pdf
File Function: First version, July 2012
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Paper provided by Banco de Espa�a in its series Banco de Espa�a Working Papers with number 1226.

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Length: 42 pages
Date of creation: Jul 2012
Date of revision:
Handle: RePEc:bde:wpaper:1226
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