IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this paper

Two Models of FX Market Interventions: The Cases of Brazil and Mexico

Listed author(s):
  • Tobal Martín
  • Yslas Renato
Registered author(s):

    This paper empirically compares the implications of two distinct models of FX intervention, within the context of Inflation Targeting Regimes. For this purpose, it applies the VAR methodology developed by Kim (2003) to the cases of Mexico and Brazil. Our results can be summarized in three points. First, FX interventions have had a short-lived effect on the exchange rate in both economies. Second, the Brazilian model of FX intervention entails higher inflationary costs and this result cannot be entirely explained by differences in the level of pass-through. Third, each model is associated with a different interaction between exchange rate and interest rate setting (conventional monetary policies).

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

    File URL: http://www.banxico.org.mx/publicaciones-y-discursos/publicaciones/documentos-de-investigacion/banxico/%7B5B2B3830-90CF-A525-FD63-DB54CC28E9CF%7D.pdf
    Download Restriction: no

    Paper provided by Banco de México in its series Working Papers with number 2016-14.

    as
    in new window

    Length:
    Date of creation: Aug 2016
    Handle: RePEc:bdm:wpaper:2016-14
    Contact details of provider: Web page: http://www.banxico.org.mx

    More information through EDIRC

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

    as
    in new window


    1. Santiago García-Verdú & Miguel Zerecero, 2013. "On central bank interventions in the Mexican peso/dollar foreign exchange market," BIS Working Papers 429, Bank for International Settlements.
    2. Hernán Rincón & Jorge Toro, 2010. "Are Capital Controls and Central Bank Intervention Effective?," BORRADORES DE ECONOMIA 007622, BANCO DE LA REPÚBLICA.
    3. Lastrapes, William D. & Selgin, George, 1995. "The liquidity effect: Identifying short-run interest rate dynamics using long-run restrictions," Journal of Macroeconomics, Elsevier, vol. 17(3), pages 387-404.
    4. Lanzafame, Matteo & Nogueira, Reginaldo, 2013. "Inflation targeting and interest rates," MPRA Paper 46153, University Library of Munich, Germany.
    5. Faust, Jon & Leeper, Eric M, 1997. "When Do Long-Run Identifying Restrictions Give Reliable Results?," Journal of Business & Economic Statistics, American Statistical Association, vol. 15(3), pages 345-353, July.
    6. W. Douglas McMillin, 2001. "The Effects of Monetary Policy Shocks: Comparing Contemporaneous versus Long-Run Identifying Restrictions," Southern Economic Journal, Southern Economic Association, vol. 67(3), pages 618-636, January.
    7. Lukas Menkhoff, 2013. "Foreign Exchange Intervention in Emerging Markets: A Survey of Empirical Studies," The World Economy, Wiley Blackwell, vol. 36(9), pages 1187-1208, 09.
    8. Christopher A. Sims, 1986. "Are forecasting models usable for policy analysis?," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 2-16.
    9. Soyoung Kim, 2003. "Monetary Policy Rules and Business Cycles," Scandinavian Journal of Economics, Wiley Blackwell, vol. 105(2), pages 221-245, 06.
    10. Capistrán, Carlos & Ibarra, Raúl & Ramos, Manuel, 2012. "El traspaso de movimientos del tipo de cambio a los precios. Un análisis para la economía mexicana," El Trimestre Económico, Fondo de Cultura Económica, vol. 0(316), pages 813-838, octubre-d.
    11. Dubravko Mihaljek & Marc Klau, 2008. "Exchange rate pass-through in emerging market economies: what has changed and why?," BIS Papers chapters,in: Bank for International Settlements (ed.), Transmission mechanisms for monetary policy in emerging market economies, volume 35, pages 103-130 Bank for International Settlements.
    12. ., 2003. "Money Market Development and Monetary Policy Operations," Chapters,in: Money Markets and Politics, chapter 4 Edward Elgar Publishing.
    13. Kim, Soyoung & Roubini, Nouriel, 2000. "Exchange rate anomalies in the industrial countries: A solution with a structural VAR approach," Journal of Monetary Economics, Elsevier, vol. 45(3), pages 561-586, June.
    14. Nogueira Jr., Reginaldo P. & León-Ledesma, Miguel A., 2009. "Fear of Floating in Brazil: Did Inflation Targeting matter?," The North American Journal of Economics and Finance, Elsevier, vol. 20(3), pages 255-266, December.
    15. Emanuel Kohlscheen & Sandro C. Andrade, 2013. "Official Interventions through Derivatives: affecting the demand for foreign exchange," Working Papers Series 317, Central Bank of Brazil, Research Department.
    16. Juan José Echavarría S. & Enrique López E. & Martha Misas A., 2009. "Intervenciones cambiarias y política monetaria en Colombia. Un análisis de VAR estructural," Borradores de Economia 580, Banco de la Republica de Colombia.
    17. Christiano, Lawrence J. & Eichenbaum, Martin & Evans, Charles L., 1999. "Monetary policy shocks: What have we learned and to what end?," Handbook of Macroeconomics,in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 2, pages 65-148 Elsevier.
    18. Cushman, David O. & Zha, Tao, 1997. "Identifying monetary policy in a small open economy under flexible exchange rates," Journal of Monetary Economics, Elsevier, vol. 39(3), pages 433-448, August.
    19. Matías Tapia & Andrea Tokman, 2004. "Effects of Foreign Exchange Intervention under Public Information: The Chilean Case," ECONOMIA JOURNAL OF THE LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION, ECONOMIA JOURNAL OF THE LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION, vol. 0(Spring 20), pages 215-256, January.
    20. Gustavo Adler & Camilo E Tovar Mora, 2011. "Foreign Exchange Intervention; A Shield Against Appreciation Winds?," IMF Working Papers 11/165, International Monetary Fund.
    21. Sims, Christopher A., 1992. "Interpreting the macroeconomic time series facts : The effects of monetary policy," European Economic Review, Elsevier, vol. 36(5), pages 975-1000, June.
    22. Gordon, David B & Leeper, Eric M, 1994. "The Dynamic Impacts of Monetary Policy: An Exercise in Tentative Identification," Journal of Political Economy, University of Chicago Press, vol. 102(6), pages 1228-1247, December.
    23. Juan José Echavarría & Mauricio Villamizar & Diego Vásquez, 2010. "Impacto de las intervenciones cambiarias sobre el nivel y la volatilidad de la tasa de cambio en Colombia," Ensayos sobre Política Económica, Banco de la Republica de Colombia, vol. 28(62), pages 12-69, Junio.
    24. Denise R. Osborn & Dong Heon Kim & Marianne Sensier, 2005. "Nonlinearity in the Fed's monetary policy rule," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 20(5), pages 621-639.
    25. Sims, Christopher A. & Zha, Tao, 2006. "Does Monetary Policy Generate Recessions?," Macroeconomic Dynamics, Cambridge University Press, vol. 10(02), pages 231-272, April.
    26. Bernanke, Ben S., 1986. "Alternative explanations of the money-income correlation," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 25(1), pages 49-99, January.
    27. Domac, Ilker & Mendoza, Alfonso, 2004. "Is there room for foreign exchange interventions under an inflation targeting framework ? Evidence from Mexico and Turkey," Policy Research Working Paper Series 3288, The World Bank.
    28. 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.
    29. Olivier J. Blanchard & Mark W. Watson, 1986. "Are Business Cycles All Alike?," NBER Chapters,in: The American Business Cycle: Continuity and Change, pages 123-180 National Bureau of Economic Research, Inc.
    30. Mark P. Taylor & Lucio Sarno, 2001. "Official Intervention in the Foreign Exchange Market: Is It Effective and, If So, How Does It Work?," Journal of Economic Literature, American Economic Association, vol. 39(3), pages 839-868, September.
    31. anonymous, 2003. "Monetary policy report to the congress," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Aug, pages 351-378.
    32. Herman Kamil, 2008. "Is Central Bank Intervention Effective Under Inflation Targeting Regimes? The Case of Colombia," IMF Working Papers 08/88, International Monetary Fund.
    33. Santiago García-Verdú & Manuel Ramos Francia, 2014. "Interventions and Expected Exchange Rates in Emerging Market Economies," Working Papers 2014-11, Banco de México.
    34. Santiago García-Verdú & Manuel Ramos-Francia, 2014. "Interventions and Expected Exchange Rates in Emerging Market Economies," Quarterly Journal of Finance (QJF), World Scientific Publishing Co. Pte. Ltd., vol. 4(01), pages 1-34.
    35. Agnes A Belaisch, 2003. "Exchange Rate Pass-Through in Brazil," IMF Working Papers 03/141, International Monetary Fund.
    Full references (including those not matched with items on IDEAS)

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:bdm:wpaper:2016-14. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dirección de Sistemas)

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.