Unveiling the Effects of Foreign Exchange Intervention

A Panel Approach

• Author(s): Gustavo Adler, Noemie Lisack, Rui Mano,
• Publisher: International Monetary Fund
• Pages: 42
• ISBN_10: 1513534602
  ISBN_13: 9781513534602
  
• Language: en
• Categories: Business & Economics / Foreign Exchange ,

Description:... 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.