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The effects of intraday foreign exchange market operations in Latin America: results for Chile, Colombia, Mexico and Peru

Listed author(s):
  • Miguel Fuentes
  • Pablo Pincheira
  • Juan Manuel Julio
  • Hernán Rincón
  • Santiago García-Verdú
  • Miguel Zerecero
  • Marco Vega
  • Erick Lahura
  • Ramon Moreno

This paper analyses the effects of sterilised, intraday foreign exchange market operations (non-discretionary and discretionary) on foreign exchange returns and volatility in four inflation targeting economies in Latin America. The distribution of exchange rates during intervention and non-intervention days are first compared, and then event study regressions are used to estimate the impact of intervention (and macro surprises) on exchange rate returns and exchange rate volatility as well as on foreign exchange market turnover (in Colombia). In general, the results suggest that the impact of both non-discretionary and discretionary operations is at times significant but transitory. However, an analysis of Chile's experience suggests that the announcement effects of even non-discretionary programmes may be significant and persistent.

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Paper provided by Bank for International Settlements in its series BIS Working Papers with number 462.

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Length: 48 pages
Date of creation: Sep 2014
Handle: RePEc:bis:biswps:462
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  1. Juan José Echavarría & Luis Fernando Melo Velandia & Santiago Téllez & Mauricio Villamizar, 2013. "The Impact of Pre-announced Day-to-day Interventions on the Colombian Exchange Rate," BORRADORES DE ECONOMIA 010767, BANCO DE LA REPÚBLICA.
  2. Dorn, Daniel & Huberman, Gur, 2010. "Preferred risk habitat of individual investors," Journal of Financial Economics, Elsevier, vol. 97(1), pages 155-173, July.
  3. Markus K. Brunnermeier & Lasse Heje Pedersen, 2009. "Market Liquidity and Funding Liquidity," Review of Financial Studies, Society for Financial Studies, vol. 22(6), pages 2201-2238, June.
  4. Stefan Thurner & J. Doyne Farmer & John Geanakoplos, 2012. "Leverage causes fat tails and clustered volatility," Quantitative Finance, Taylor & Francis Journals, vol. 12(5), pages 695-707, February.
  5. Reitz, Stefan & Taylor, Mark P., 2008. "The coordination channel of foreign exchange intervention: A nonlinear microstructural analysis," European Economic Review, Elsevier, vol. 52(1), pages 55-76, January.
  6. Jorge Toro & Juan Manuel Julio, 2005. "Efectividad De La Intervención Discrecional Del Banco De La República En El Mercado Cambiario," BORRADORES DE ECONOMIA 002411, BANCO DE LA REPÚBLICA.
  7. Torben G. Andersen & Tim Bollerslev & Francis X. Diebold & Clara Vega, 2003. "Micro Effects of Macro Announcements: Real-Time Price Discovery in Foreign Exchange," American Economic Review, American Economic Association, vol. 93(1), pages 38-62, March.
  8. Dominguez, Kathryn M. E., 2003. "The market microstructure of central bank intervention," Journal of International Economics, Elsevier, vol. 59(1), pages 25-45, January.
  9. Emanuel Kohlscheen, 2012. "Order Flow and the Real: Indirect Evidence of the Effectiveness of Sterilized Interventions," Working Papers Series 273, Central Bank of Brazil, Research Department.
  10. Dominguez, Kathryn M.E., 2006. "When do central bank interventions influence intra-daily and longer-term exchange rate movements?," Journal of International Money and Finance, Elsevier, vol. 25(7), pages 1051-1071, November.
  11. Jushan Bai & Serena Ng, 2005. "Tests for Skewness, Kurtosis, and Normality for Time Series Data," Journal of Business & Economic Statistics, American Statistical Association, vol. 23, pages 49-60, January.
  12. Hernán Rincón & Jorge Toro, 2010. "Are Capital Controls and Central Bank Intervention Effective?," BORRADORES DE ECONOMIA 007622, BANCO DE LA REPÚBLICA.
  13. Pablo Pincheira, 2013. "Interventions and Inflation Expectations in an Inflation Targeting Economy," Working Papers Central Bank of Chile 693, Central Bank of Chile.
  14. Philippe Jorion, 1996. "Risk and Turnover in the Foreign Exchange Market," NBER Chapters,in: The Microstructure of Foreign Exchange Markets, pages 19-40 National Bureau of Economic Research, Inc.
  15. 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.
  16. Herman Kamil, 2008. "Is Central Bank Intervention Effective Under Inflation Targeting Regimes? The Case of Colombia," IMF Working Papers 08/88, International Monetary Fund.
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