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The effectiveness of foreign exchange intervention in Latin America: A nonlinear approach to the coordination channel

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  • Gamboa-Estrada, Fredy

Abstract

This paper examines the effectiveness of the coordination channel of foreign exchange intervention in Brazil, Chile, Colombia, Mexico, and Peru. The theoretical approach is based on a model in which traders' confidence in the fundamentals depends on exchange rate misalignments and central bank intervention. The presence of the monetary authority in the foreign exchange market may increase traders' confidence and speed up the mean reversion of the exchange rates. The empirical section of this paper is based on a Smooth Transition Regression GARCH-M model. The results suggest that foreign exchange intervention via the coordination channel has been effective over the period 2000–2013.

Suggested Citation

  • Gamboa-Estrada, Fredy, 2019. "The effectiveness of foreign exchange intervention in Latin America: A nonlinear approach to the coordination channel," Global Finance Journal, Elsevier, vol. 40(C), pages 13-27.
    • Handle: RePEc:eee:glofin:v:40:y:2019:i:c:p:13-27
    DOI: 10.1016/j.gfj.2018.11.004
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    Cited by:

    1. Jara, Alejandro & Piña, Marco, 2023. "Exchange rate volatility and the effectiveness of FX interventions: The case of Chile," Latin American Journal of Central Banking (previously Monetaria), Elsevier, vol. 4(2).
    2. Solikin M. Juhro & Prayudhi Azwar, 2021. "Fx Intervention Strategy And Exchange Rate Stability In Indonesia," Working Papers WP/03/2021, Bank Indonesia.
    3. Oguzhan Ozcelebi & Kaya Tokmakcioglu & Emre Su, 2021. "Revisiting the asymmetric impacts of the exchange market pressure on the inflation, interest rate and foreign trade balance in Eastern Europe," Empirical Economics, Springer, vol. 61(5), pages 2517-2538, November.

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    More about this item

    Keywords

    Foreign exchange intervention; Coordination channel; Market microstructure; Smooth transition GARCH-M model;
    All these keywords.

    JEL classification:

    • C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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