Foreign Exchange Intervention : A Shield Against Appreciation Winds?

Author/Editor:

Gustavo Adler ; Camilo E Tovar Mora

Publication Date:

July 1, 2011

Electronic Access:

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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.

Series:

Working Paper No. 11/165

Subject:

English

Publication Date:

July 1, 2011

ISBN/ISSN:

9781462301218/1018-5941

Stock No:

WPIEA2011165

Price:

$18.00 (Academic Rate:$18.00)

Format:

Paper

Pages:

29

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