Dread of Depreciation: Measuring Real Exchange Rate Interventions

April 1, 2002

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

We specify an empirical framework to detect the effects of official intervention on real exchange rate dynamics. Using data for 27 advanced and emerging market economies, we find evidence that interventions are a near-universal practice; almost all countries intervene when real exchange rates depreciate; interventions reduce the degree of persistence in real exchange rates; and the defense of an overvalued currency tends to be contractionary.

Subject: Emerging and frontier financial markets, Exchange rates, Financial markets, Foreign exchange, Purchasing power parity, Real effective exchange rates, Real exchange rates

Keywords: Africa, critical value, disconnect puzzle, Emerging and frontier financial markets, exchange rate dynamics, exchange rate intervention, exchange rate misalignment, Exchange rates, interventions, least squares, level of significance, mean reversion, nominal exchange rate, parity conditions, Purchasing power parity, Real effective exchange rates, Real exchange rates, WP

Pages:
36
Volume:
2002
DOI:
https://doi.org/10.5089/9781451848434.001
Issue:
063
Series:
Working Paper No. 2002/063
Stock No:
WPIEA0632002
ISBN:
9781451848434
ISSN:
1018-5941

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