Factors Influencing Emerging Market Central Banks’ Decision to Intervene in Foreign Exchange Markets
IMF Working Papers, March 15, 2013
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- Factors Influencing Emerging Market Central Banks’ Decision to Intervene in Foreign Exchange Markets
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Bibliographic details
- Authors: Matthew S Malloy
- Published: March 15, 2013
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781475532814.001
Summary
- Using panel data for 15 economies from 2001-12, the paper identifies determinants of central bank foreign exchange intervention in emerging markets (“EMs”) with flexible to moderately managed exchange rates.
- 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 is used to test whether other macroeconomic variables influence different rates of reserve accumulation across economies.
- Evidence is found for both precautionary and external competitiveness motives for reserve accumulation.
Key findings
- Central banks respond to appreciation/depreciation pressures by increasing foreign exchange intervention (characterized as “leaning against the wind”).
- The panel-data approach enables testing of cross-country determinants of reserve accumulation.
- Empirical tests provide evidence consistent with:
- Precautionary motives for holding international reserves.
- External competitiveness motives for reserve accumulation.
Data and scope
- Sample: panel data for 15 economies from 2001-12.
- Exchange rate regimes covered: flexible to moderately managed exchange rates.
Subjects and keywords
- Subjects: Central banks, Exchange rates, Foreign exchange, Foreign exchange intervention, International reserves, Real effective exchange rates.
- Keywords: A. intervention data quality, adequacy dummy, Africa, central bank, central bank website, depreciation pressure, determinants of FX intervention, exchange rate, Exchange rates, foreign exchange intervention, FX intervention, FX intervention data robustness, Global, international reserves, intervention, intervention data, intervention decision, o r, Real effective exchange rates, reserve, valuation change, WP.