Factors Influencing Emerging Market Central Banksâ€™ Decision to Intervene in Foreign Exchange Markets
Using panel data for 15 economies from 2001-12, I identify determinants of central bank foreign exchange intervention in emerging markets (â€œEMsâ€) with flexible to moderately managed exchange rates. Similar to other studies, I find that central banks tend to â€œlean against the wind,â€ buying/selling more foreign exchange in response to greater short-run and medium-run appreciation/depreciation pressures. The panel structure provides a framework to test whether other macroeconomic variables influence the different rates of reserve accumulation between economies. In testing other variables, I find evidence of both precautionary and external competitiveness motives for reserve accumulation.
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