Unveiling the Effects of Foreign Exchange Intervention: A Panel Approach

By Gustavo Adler, Noemie Lisack, Rui Mano

June 23, 2015

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Gustavo Adler, Noemie Lisack, and Rui Mano. Unveiling the Effects of Foreign Exchange Intervention: A Panel Approach, (USA: International Monetary Fund, 2015) accessed November 12, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

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.

Subject: Exchange rate arrangements, Exchange rates, Foreign exchange, Foreign exchange intervention, Real effective exchange rates, Real exchange rates

Keywords: Broad money, Carrying out FXI operation, Exchange rate, Exchange rate arrangements, Exchange rates, Foreign exchange, Foreign exchange intervention, FXI coefficient estimate, FXI decision, FXI effect, GDP observation, Global, Interest rate, Market size, Real effective exchange rates, Real exchange rates, Reserves, Stage FXI coefficient, Sterilized FXI, WP

Publication Details

Pages:

42
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2015/130
Stock No:

WPIEA2015130
ISBN:

9781513514864
ISSN:

1018-5941

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