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Are FX communications effective? Evidence from emerging markets

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  • Parra-Polanía, Julián
  • Sánchez-Jabba, Andrés
  • Sarmiento, Miguel

Abstract

This paper examines the effects of foreign exchange (FX) communications on FX markets in Colombia and Mexico. Our estimations follow the calendar-time portfolio approach using daily data between 2000 and 2019 on exchange rates and known risk factors. We find an asymmetric effect of such communications: while there is strong evidence indicating that communications aimed at weakening the local currency affect the exchange rate level in the intended direction, there is no evidence of impact when examining communications intended to strengthen it. These results are consistent with fear of appreciation and with previous evidence from developed economies.

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  • Parra-Polanía, Julián & Sánchez-Jabba, Andrés & Sarmiento, Miguel, 2024. "Are FX communications effective? Evidence from emerging markets," Emerging Markets Review, Elsevier, vol. 59(C).
    • Handle: RePEc:eee:ememar:v:59:y:2024:i:c:s1566014123000961
    DOI: 10.1016/j.ememar.2023.101091
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    Cited by:

    1. Bertsch, Christoph & Hull, Isaiah & Lumsdaine, Robin L. & Zhang, Xin, 2024. "Four Facts about International Central Bank Communication," Working Paper Series 432, Sveriges Riksbank (Central Bank of Sweden).

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    More about this item

    Keywords

    FX communication; Exchange rate; Calendar time portfolios; Emerging market economies;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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