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Foreign exchange intervention and expectation in emerging economies

  • Ken Miyajima

Using monthly data for four selected emerging economies, sterilised central bank foreign exchange intervention is found to have little systematic influence on the near-term nominal exchange rate expectations in the direction intended by the central banks. In other words, central bank dollar purchases to stem exchange rate appreciation or related exchange rate volatility are not associated with an adjustment of the near-term exchange rate forecasts in the direction of depreciation, and vice versa. This suggests intervention may not change the nearterm exchange rate expectations. Moreover, intervention may have had unintended effects in the sense that it can lead to undesired volatility in the exchange rate, which is consistent with previous studies.

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Paper provided by Bank for International Settlements in its series BIS Working Papers with number 414.

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Length: 29 pages
Date of creation: Jun 2013
Date of revision:
Handle: RePEc:bis:biswps:414
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  1. Gustavo Adler & Camilo Ernesto Tovar Mora, 2011. "Foreign Exchange Intervention: A Shield Against Appreciation Winds?," IMF Working Papers 11/165, International Monetary Fund.
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  14. Meese, Richard A. & Rogoff, Kenneth, 1983. "Empirical exchange rate models of the seventies : Do they fit out of sample?," Journal of International Economics, Elsevier, vol. 14(1-2), pages 3-24, February.
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  19. Frenkel, Michael & Rülke, Jan-Christoph & Stadtmann, Georg, 2009. "Two currencies, one model? Evidence from the Wall Street Journal forecast poll," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 19(4), pages 588-596, October.
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