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Foreign Exchange Interventions and Intermediary Constraints

Author

Listed:
  • Alex Ferreira

    (University of São Paulo)

  • Rory Mullen

    (WBS - Warwick Business School - University of Warwick [Coventry])

  • Giovanni Ricco

    (CREST - Centre de Recherche en Économie et Statistique - ENSAI - Ecole Nationale de la Statistique et de l'Analyse de l'Information [Bruz] - X - École polytechnique - IP Paris - Institut Polytechnique de Paris - ENSAE Paris - École Nationale de la Statistique et de l'Administration Économique - IP Paris - Institut Polytechnique de Paris - CNRS - Centre National de la Recherche Scientifique, X - École polytechnique - IP Paris - Institut Polytechnique de Paris, University of Warwick [Coventry], OFCE - Observatoire français des conjonctures économiques (Sciences Po) - Sciences Po - Sciences Po)

  • Ganesh Viswanath-Natraj

    (WBS - Warwick Business School - University of Warwick [Coventry])

  • Zijie Wang

    (WBS - Warwick Business School - University of Warwick [Coventry])

Abstract

The dollar intermediation channel of foreign exchange interventions, a form of the portfolio balance channel, emerges from the imperfect substitutability between domestic currency and USD, the dominant global currency, and financial frictions limiting USD liquidity access. This channel plays a key role in the Banco Central do Brasil's FX interventions. Using high-frequency data on 8,000+ Brazilian FXI events (1999-2023), we find that unanticipated spot sales appreciate the domestic currency, reduce covered interest parity deviations, and crowd out private intermediation, especially when intermediaries are constrained. Our results support an extended Gabaix and Maggiori (2015) model, where constrained intermediaries amplify intervention effectiveness.

Suggested Citation

  • Alex Ferreira & Rory Mullen & Giovanni Ricco & Ganesh Viswanath-Natraj & Zijie Wang, 2025. "Foreign Exchange Interventions and Intermediary Constraints," Working Papers hal-05008812, HAL.
    • Handle: RePEc:hal:wpaper:hal-05008812
    Note: View the original document on HAL open archive server: https://sciencespo.hal.science/hal-05008812v1
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