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Unveiling the Effects of Foreign Exchange Intervention: A Panel Approach
Author:
Gustavo Adler
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Noemie Lisack null

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Rui Mano
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Series:
IMF Working Papers
Volume/Issue:
Volume 2015: Issue 130
Language:
English
Publication Date:
23 Jun 2015
DOI:
https://doi.org/10.5089/9781513514864.001
ISBN:
9781513514864
ISSN:
1018-5941
Pages:
42
Keywords:
WP; interest rate; broad money; foreign exchange; foreign exchange intervention; exchange rate; reserves; FXI effect; GDP observation; FXI coefficient estimate; sterilized FXI; market size; stage FXI coefficient; carrying out FXI operation; FXI decision; Exchange rates; Real exchange rates; Real effective exchange rates; Exchange rate arrangements; Global
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IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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We study the effect of foreign exchange intervention on the exchange rate relying on an instrumental-variables panel approach. We find robust evidence that intervention affects the level of the exchange rate in an economically meaningful way. A purchase of foreign currency of 1 percentage point of GDP causes a depreciation of the nominal and real exchange rates in the ranges of [1.7-2.0] percent and [1.4-1.7] percent respectively. The effects are found to be quite persistent. The paper also explores possible asymmetric effects, and whether effectiveness depends on the depth of domestic financial markets.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund