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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. Eric van Wincoop & Philippe Bacchetta, 2004. "Can Information Heterogeneity Explain the Exchange Rate Determination Puzzle?," Econometric Society 2004 North American Winter Meetings 628, Econometric Society.
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  3. Graham Elliott & Takatoshi Ito, 1998. "Heterogeneous Expectations and Tests of Efficiency in the Yen/Dollar Forward Exchange rate Market," Discussion Paper Series a347, Institute of Economic Research, Hitotsubashi University.
  4. Jonathan David Ostry & Atish R. Ghosh & Marcos Chamon, 2012. "Two Targets, Two Instruments: Monetary and Exchange Rate Policies in Emerging Market Economies," IMF Staff Discussion Notes 12/01, International Monetary Fund.
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  12. Michael W. Klein & Karen K. Lewis, 1991. "Learning About Intervention Target Zones," NBER Working Papers 3674, National Bureau of Economic Research, Inc.
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  16. Koedijk, Kees G. & Mizrach, Bruce & Stork, Philip A. & de Vries, Casper G., 1995. "New evidence on the effectiveness of foreign exchange market intervention," European Economic Review, Elsevier, vol. 39(3-4), pages 501-508, April.
  17. 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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