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Unveiling the Effects of Foreign Exchange Intervention: A Panel Approach

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  • Gustavo Adler
  • Noemie Lisack
  • Rui Mano

Abstract

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.

Suggested Citation

  • Gustavo Adler & Noemie Lisack & Rui Mano, 2015. "Unveiling the Effects of Foreign Exchange Intervention: A Panel Approach," IMF Working Papers 2015/130, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2015/130
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    More about this item

    Keywords

    WP; interest rate; broad money; foreign exchange; foreign exchange intervention; exchange rate; reserves; FXI effect; GDP observation; FXI coefficient estimate; sterilized FXI; market size; stage FXI coefficient; carrying out FXI operation; FXI decision; Exchange rates; Real exchange rates; Real effective exchange rates; Exchange rate arrangements; Global;
    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

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