On central bank interventions in the Mexican peso/dollar foreign exchange market
In recent years the Bank of Mexico has made a series of rules-based interventions in the peso/dollar foreign exchange market. We assess the effectiveness of two specific interventions that occurred in periods of great stress for the Mexican economy. The aims of these two interventions were, respectively, to provide liquidity and to promote orderly conditions in the foreign exchange market. For our analysis, we follow the framework implemented by Dominguez (2003) and Dominguez (2006), an event-style microstructure approach. We use the bid-ask spreads as a measure of liquidity and of orderly conditions. In general, our results show no indication of an effect in the opposite direction from the one intended for the first intervention and are fairly conclusive regarding a significant reduction on the bid-ask spread for the second intervention.
|Date of creation:||Sep 2013|
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- José Julián Sidaoui, 2005. "Central banking intervention under a floating exchange rate regime: ten years of Mexican experience," BIS Papers chapters, in: Bank for International Settlements (ed.), Foreign exchange market intervention in emerging markets: motives, techniques and implications, volume 24, pages 209-30 Bank for International Settlements.
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"The effectiveness of forex interventions in four Latin American countries,"
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Elsevier, vol. 17(C), pages 224-240.
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"Policy Decentralization and Exchange Rate Management in Interdependent Economies,"
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0531, National Bureau of Economic Research, Inc.
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- Dominguez, Kathryn M & Frankel, Jeffrey A, 1993. "Does Foreign-Exchange Intervention Matter? The Portfolio Effect," American Economic Review, American Economic Association, vol. 83(5), pages 1356-69, December.
- Bazdresch, Santiago & Werner, Alejandro, 2005. "Regime switching models for the Mexican peso," Journal of International Economics, Elsevier, vol. 65(1), pages 185-201, January.
- 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.
- Jorge IvÃ¡n Canales Kriljenko & Cem Karacadag & Roberto Pereira GuimarÃ£es & Shogo Ishii, 2006. "Official Foreign Exchange Intervention," IMF Occasional Papers 249, International Monetary Fund.
- Huang, Roger D & Stoll, Hans R, 1997. "The Components of the Bid-Ask Spread: A General Approach," Review of Financial Studies, Society for Financial Studies, vol. 10(4), pages 995-1034.
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