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Foreign Exchange Intervention : A Shield Against Appreciation Winds?

Author/Editor: Gustavo Adler | Camilo Ernesto Tovar Mora
Authorized for Distribution: July 1, 2011
Electronic Access: Free Full Text (PDF file size is 1,574KB)
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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: This paper examines foreign exchange intervention practices and their effectiveness using a new qualitative and quantitative database for a panel of 15 economies covering 2004 - 10, with special focus on Latin America. Qualitatively, it examines institutional aspects such as declared motives, instruments employed, the use of rules versus discretion, and the degree of transparency. Quantitatively, it assesses the effectiveness of sterilized interventions in influencing the exchange rate using a two-stage IV-panel data approach to overcome endogeneity bias. Results suggest that interventions slow the pace of appreciation, but the effects decrease rapidly with the degree of capital account openness. At the same time, interventions are more effective in the context of already ?overvalued' exchange rates.
 
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Series: Working Paper No. 11/165
Subject(s): Exchange rates | Latin America
Author's keyword(s): Foreign exchange intervention | exchange rates | sterilization
 
English  
    Published:   July 1, 2011        
    ISBN/ISSN:   9781462301218/1018-5941   Format:   Paper
    Stock No:   WPIEA2011165   Pages:   29
    Price:   US$18.00
       
     
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