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Interventions and Inflation Expectations in an Inflation Targeting Economy

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  • Pablo Pincheira

Abstract

In this paper we explore the role that exchange rate interventions may play in determining inflation expectations in Chile. To that end, we consider a set of nine deciles of inflation expectations coming from the survey of professional forecasters carried out by the Central Bank of Chile. We consider two episodes of preannounced central bank interventions during the sample period 2007–2012. Our results indicate, on the one hand, that the intervention program carried out in 2008 had a significant, but relatively short-lived, impact on the distribution of inflation expectations at long horizons. On the other hand, the intervention carried out in 2011 shows no relevant impact on the distribution of inflation expectations in Chile. A daily analysis using break-even inflation rate as a proxy for inflation expectations is roughly consistent with these results. Our analysis also suggests that the interventions did have an impact on daily exchange rate returns, especially on the day after the announcements of the intervention programs.

Suggested Citation

  • Pablo Pincheira, 2013. "Interventions and Inflation Expectations in an Inflation Targeting Economy," Working Papers Central Bank of Chile 693, Central Bank of Chile.
  • Handle: RePEc:chb:bcchwp:693
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    References listed on IDEAS

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    Cited by:

    1. Chamon, Marcos & Garcia, Márcio & Souza, Laura, 2017. "FX interventions in Brazil: A synthetic control approach," Journal of International Economics, Elsevier, pages 157-168.
    2. World Bank, 2014. "Global Economic Prospects, Volume 9, June 2014 : Shifting Priorities, Building for the Future," World Bank Publications, The World Bank, number 18647.
    3. Augusto de la Torre & Eduardo Levy Yeyati & Samuel Pienknagura, "undated". "Latin America’s Deceleration and the Exchange Rate Buffer : LAC Semiannual Report, October 2013," World Bank Other Operational Studies 16107, The World Bank.
    4. Sebastián Claro & Claudio Soto, 2013. "Exchange rate policy and exchange rate interventions: the Chilean experience," BIS Papers chapters,in: Bank for International Settlements (ed.), Sovereign risk: a world without risk-free assets?, volume 73, pages 81-93 Bank for International Settlements.
    5. Catalán-Herrera, Juan, 2016. "Foreign exchange market interventions under inflation targeting: The case of Guatemala," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 42(C), pages 101-114.
    6. Miguel Fuentes & Pablo Pincheira & Juan Manuel Julio & Hernán Rincón, 2014. "The effects of intraday foreign exchange market operations in Latin America: results for Chile, Colombia, Mexico and Peru," BORRADORES DE ECONOMIA 012258, BANCO DE LA REPÚBLICA.
    7. Gustavo Adler & Camilo Ernesto Tovar, 2014. "Foreign Exchange Interventions and their Impact on Exchange Rate Levels," Monetaria, Centro de Estudios Monetarios Latinoamericanos, vol. 0(1), pages 1-48, January-J.

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