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Foreign Exchange Intervention and Exchange Rate Volatility in Peru


  • Humala, Alberto

    (Central Reserve Bank of Peru)

  • Rodríguez, Gabriel

    () (Central Reserve Bank of Peru and Pontificia Universidad Católica del Perú)


Flexible exchange rate experience in Peru has been accompanied by frequent official interventions in the form of foreign exchange purchases or sales. Monetary authority pursues reducing excess volatility in the exchange rate through its direct intervention. However, in recent years, this intervention has concentrated in US dollars purchases, apparently signaling a bias towards defending a given exchange rate level (not necessarily fixed). For the period 1994 - 2007, this document assesses consistency of the empirical evidence with the goal of reducing exchange rate volatility. Thus, it uses univariate and multivariate time series models subject to stochastic shifts to study currency pressures. Results suggest consistency with the reduced-volatility goal. Nonetheless, in line with other studies, factors such as the foreign exchange gap with respect to its trend also induce foreign exchange intervention.

Suggested Citation

  • Humala, Alberto & Rodríguez, Gabriel, 2009. "Foreign Exchange Intervention and Exchange Rate Volatility in Peru," Working Papers 2009-008, Banco Central de Reserva del Perú.
  • Handle: RePEc:rbp:wpaper:2009-008

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    References listed on IDEAS

    1. Guillermo A. Calvo & Carmen M. Reinhart, 2002. "Fear of Floating," The Quarterly Journal of Economics, Oxford University Press, vol. 117(2), pages 379-408.
    2. Beine, Michel & Laurent, Sebastien & Lecourt, Christelle, 2003. "Official central bank interventions and exchange rate volatility: Evidence from a regime-switching analysis," European Economic Review, Elsevier, vol. 47(5), pages 891-911, October.
    3. Carranza, Luis J. & Cayo, Juan M. & Galdon-Sanchez, Jose E., 2003. "Exchange rate volatility and economic performance in Peru: a firm level analysis," Emerging Markets Review, Elsevier, vol. 4(4), pages 472-496, December.
    4. Markus Haas, 2004. "A New Approach to Markov-Switching GARCH Models," Journal of Financial Econometrics, Society for Financial Econometrics, vol. 2(4), pages 493-530.
    5. Rasmus Fatum & Michael M. Hutchison, 2003. "Is sterilised foreign exchange intervention effective after all? an event study approach," Economic Journal, Royal Economic Society, vol. 113(487), pages 390-411, April.
    6. Hoshikawa, Takeshi, 2008. "The effect of intervention frequency on the foreign exchange market: The Japanese experience," Journal of International Money and Finance, Elsevier, vol. 27(4), pages 547-559, June.
    7. Eric Hillebrand & Gunther Schnabl, 2003. "The Effects of Japanese Foreign Exchange Intervention: GARCH Estimation and Change Point Detection," Departmental Working Papers 2003-09, Department of Economics, Louisiana State University.
    8. Brunetti, Celso & Scotti, Chiara & Mariano, Roberto S. & Tan, Augustine H.H., 2008. "Markov switching GARCH models of currency turmoil in Southeast Asia," Emerging Markets Review, Elsevier, vol. 9(2), pages 104-128, June.
    9. Mark P. Taylor, 2004. "Is Official Exchange Rate Intervention Effective?," Economica, London School of Economics and Political Science, vol. 71, pages 1-11, February.
    10. Celso Brunetti & Roberto S. Mariano & Chiara Scotti & Augustine H. H. Tan, 2003. "Markov Switching Garch Models of Currency Crises in Southeast Asia," PIER Working Paper Archive 03-008, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
    11. Sollis, Robert, 2008. "U.S. dollar real exchange rates: Nonlinearity revisited," Journal of International Money and Finance, Elsevier, vol. 27(4), pages 516-528, June.
    12. 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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    Cited by:

    1. Edgar Ventura Neyra & Gabriel Rodríguez, 2015. "Explaining the Determinants of the Frequency of Exchange Rate Interventions in Peru Using Count Models," Applied Economics Quarterly (formerly: Konjunkturpolitik), Duncker & Humblot GmbH, Berlin, vol. 61(3), pages 261-292.
    2. Salas, Jorge, 2011. "Estimación bayesiana de unmodelo de pequeña economía abierta con dolarización parcial," Revista Estudios Económicos, Banco Central de Reserva del Perú, issue 22, pages 41-62.
    3. Maertens Odria, Luís Ricardo & Castillo, Paul & Rodriguez, Gabriel, 2012. "Does the exchange rate pass-through into prices change when inflation targeting is adopted? The Peruvian case study between 1994 and 2007," Journal of Macroeconomics, Elsevier, vol. 34(4), pages 1154-1166.
    4. Broto, Carmen, 2013. "The effectiveness of forex interventions in four Latin American countries," Emerging Markets Review, Elsevier, vol. 17(C), pages 224-240.
    5. Lukas Menkhoff, 2013. "Foreign Exchange Intervention in Emerging Markets: A Survey of Empirical Studies," The World Economy, Wiley Blackwell, vol. 36(9), pages 1187-1208, September.
    6. Mauricio Villamizar-Villegas & David Perez-Reyna, 2015. "A Survey on the Effects of Sterilized Foreign Exchange Intervention," Borradores de Economia 862, Banco de la Republica de Colombia.
    7. Daniel Ordoñez-Callamand & Mauricio Villamizar-Villegas & Luis F. Melo-Velandia, 2016. "Foreign Exchange Intervention Revisited: A New Way of Estimating Censored Models," Borradores de Economia 972, Banco de la Republica de Colombia.
    8. Gustavo Adler & Noemie Lisack & Rui Mano, 2015. "Unveiling the Effects of Foreign Exchange Intervention; A Panel Approach," IMF Working Papers 15/130, International Monetary Fund.
    9. 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.
    10. Rossini, Renzo & Quispe, Zenón & Serrano, Enrique, 2014. "Intervención cambiaria en el Perú: 2007 a 2013," Revista Estudios Económicos, Banco Central de Reserva del Perú, issue 27, pages 9-24.
    11. Melesse Tashu, 2014. "Motives and Effectiveness of Forex Interventions; Evidence from Peru," IMF Working Papers 14/217, International Monetary Fund.
    12. Madhusudan Mohanty & Bat-el Berger, 2013. "Central bank views on foreign exchange intervention," BIS Papers chapters,in: Bank for International Settlements (ed.), Sovereign risk: a world without risk-free assets?, volume 73, pages 55-74 Bank for International Settlements.
    13. Mauricio Lopera Castaño & Ramón Javier Mesa Callejas & Sergio Iván Restrepo Ochoa & Charle Augusto Londoño Henao, 2013. "Modelando el esquema de intervenciones del tipo de cambio para Colombia. una aplicación empírica de la técnica de regresión del cuantil bajo redes neu," REVISTA CUADERNOS DE ECONOMÍA, UN - RCE - CID, May.
    14. 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.

    More about this item


    Foreign Exchange Intervention; Exchange Rate Volatility; Markov-Switching Models.;

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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