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Comparing the impact of discretionary and pre-announced central bank interventions

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  • Luna Santos, Francisco

Abstract

I explore the launching of a Brazilian massive program of foreign exchange (FX) interventions in August 2013 to compare discretionary and pre-announced interventions. Using an external instrument approach, I find that Brazilian currency (BRL) appreciates 29.4 bps for each USD 1 billion discretionary intervention and the impact is significant up to the following day of the intervention. In contrast, an intraday event-study shows that the pre-announced intervention program caused a total BRL appreciation of 460 bps. Its public release accounted for 120 bps, while the impact of individual auctions was spread over two months and accounted for the remaining 340 bps. Finally, discretionary interventions are more effective per USD billion.

Suggested Citation

  • Luna Santos, Francisco, 2021. "Comparing the impact of discretionary and pre-announced central bank interventions," Journal of International Money and Finance, Elsevier, vol. 110(C).
    • Handle: RePEc:eee:jimfin:v:110:y:2021:i:c:s0261560620302631
    DOI: 10.1016/j.jimonfin.2020.102307
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    1. Freddy A. Pinzón-Puerto & Mauricio Villamizar-Villegas, 2023. "Do Actions Speak Louder than Words? A Foreign Exchange Intervention Analysis," Borradores de Economia 1223, Banco de la Republica de Colombia.

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    More about this item

    Keywords

    Foreign exchange rate interventions; High frequency; Event study; External instrument; Foreign exchange market; Brazil;
    All these keywords.

    JEL classification:

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

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