Factors Influencing Emerging Market Central Banks’ Decision to Intervene in Foreign Exchange Markets

Author/Editor: Matthew S Malloy
Publication Date: March 15, 2013
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate
Summary: Using panel data for 15 economies from 2001-12, I identify determinants of central bank foreign exchange intervention in emerging markets (“EMs”) with flexible to moderately managed exchange rates. Similar to other studies, I find that central banks tend to “lean against the wind,” buying/selling more foreign exchange in response to greater short-run and medium-run appreciation/depreciation pressures. The panel structure provides a framework to test whether other macroeconomic variables influence the different rates of reserve accumulation between economies. In testing other variables, I find evidence of both precautionary and external competitiveness motives for reserve accumulation.
Series: Working Paper No. 13/70
Subject(s): Central banks | Emerging markets | Exchange markets | Intervention | Reserves accumulation | Cross country analysis | Economic models

Publication Date: March 15, 2013
ISBN/ISSN: 9781475532814/1018-5941 Format: Paper
Stock No: WPIEA2013070 Pages: 28
US$18.00 (Academic Rate:
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