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Asymmetric effects of FOREX intervention using intraday data: evidence from Peru

  • Erick Lahura
  • Marco Vega

Asymmetric effects of Central Bank foreign exchange (forex) intervention have not been extensively studied in the literature, even though in practice Central Bank's motives for purchasing and for selling foreign currency may differ. This paper studies asymmetric effects of Central Bank interventions under the premise that policy authorities view depreciations and appreciations as having asymmetric implications. Using undisclosed intraday data for Peru from 2009 to 2011, this paper shows that Central Bank interventions in the foreign exchange market have a signifcant and asymmetric effect on interbank exchange rates. Specifically, central bank intervention is more effective in reducing the interbank exchange rate than in raising it.

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Paper provided by Bank for International Settlements in its series BIS Working Papers with number 430.

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Length: 23 pages
Date of creation: Sep 2013
Date of revision:
Handle: RePEc:bis:biswps:430
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  1. Matthieu Bussière & Claude Lopez & Cédric Tille, 2014. "Do Real Exchange Rate Appreciations Matter for Growth?," IHEID Working Papers 06-2014, Economics Section, The Graduate Institute of International Studies.
  2. Levy-Yeyati, Eduardo & Sturzenegger, Federico & Gluzmann, Pablo Alfredo, 2013. "Fear of appreciation," Journal of Development Economics, Elsevier, vol. 101(C), pages 233-247.
  3. Guillermo A. Calvo & Carmen M. Reinhart, 2000. "Fear of Floating," NBER Working Papers 7993, National Bureau of Economic Research, Inc.
  4. Kathryn M. Dominguez, 1999. "The Market Microstructure of Central Bank Intervention," NBER Working Papers 7337, National Bureau of Economic Research, Inc.
  5. Adrián Armas & Francisco Grippa, 2005. "Targeting Inflation in a Dollarized Economy: The Peruvian Experience," IDB Publications (Working Papers) 6827, Inter-American Development Bank.
  6. Marcus Kappler & Helmut Reisen & Moritz Schularick & Edouard Turkisch, 2013. "The Macroeconomic Effects of Large Exchange Rate Appreciations," Open Economies Review, Springer, vol. 24(3), pages 471-494, July.
  7. Renzo Rossini & Zenon Quispe & Enrique Serrano, 2013. "Foreign exchange intervention in Peru," BIS Papers chapters, in: Bank for International Settlements (ed.), Sovereign risk: a world without risk-free assets?, volume 73, pages 243-262 Bank for International Settlements.
  8. Broto, Carmen, 2013. "The effectiveness of forex interventions in four Latin American countries," Emerging Markets Review, Elsevier, vol. 17(C), pages 224-240.
  9. Fischer, Andreas M & Zurlinden, Mathias, 1999. "Exchange Rate Effects of Central Bank Interventions: An Analysis of Transaction Prices," Economic Journal, Royal Economic Society, vol. 109(458), pages 662-76, October.
  10. Renzo Rossini & Zenon Quispe & Donita Rodriguez, 2011. "Capital flows, monetary policy and forex intervention in Peru," BIS Papers chapters, in: Bank for International Settlements (ed.), Capital flows, commodity price movements and foreign exchange intervention, volume 57, pages 261-274 Bank for International Settlements.
  11. 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.
  12. Pasquariello, Paolo, 2007. "Informative trading or just costly noise? An analysis of Central Bank interventions," Journal of Financial Markets, Elsevier, vol. 10(2), pages 107-143, May.
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