Unveiling the Effects of Foreign Exchange Intervention: A Panel Approach

Author/Editor:

Gustavo Adler ; Noemie Lisack ; Rui Mano

Publication Date:

June 23, 2015

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:

We study the effect of foreign exchange intervention on the exchange rate relying on an instrumental-variables panel approach. We find robust evidence that intervention affects the level of the exchange rate in an economically meaningful way. A purchase of foreign currency of 1 percentage point of GDP causes a depreciation of the nominal and real exchange rates in the ranges of [1.7-2.0] percent and [1.4-1.7] percent respectively. The effects are found to be quite persistent. The paper also explores possible asymmetric effects, and whether effectiveness depends on the depth of domestic financial markets.

Series:

Working Paper No. 2015/130

Subject:

Exchange rate arrangements Exchange rates Foreign exchange Foreign exchange intervention Real effective exchange rates Real exchange rates

English

Publication Date:

June 23, 2015

ISBN/ISSN:

9781513514864/1018-5941

Stock No:

WPIEA2015130

Pages:

42

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