Motives and Effectiveness of Forex Interventions: Evidence from Peru
IMF Working Papers, December 12, 2014
Source details
- Canonical URL
- Motives and Effectiveness of Forex Interventions: Evidence from Peru
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Bibliographic details
- Authors: Melesse Tashu
- Published: December 12, 2014
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781484340189.001
Summary findings
- The paper assesses empirically the motives and effectiveness of forex interventions in Peru.
- While the central bank of Peru states that its forex interventions aim only at containing excessive exchange rate volatility, the paper's results show that, in practice, the interventions seem to have aimed at “leaning against the wind” as well.
- The results show that forex sales, but not forex purchases, react to volatility, indicating asymmetry in the central bank’s reactions to episodes of appreciation and depreciation pressures.
- The paper documents evidence of asymmetry in the effectiveness of forex interventions.
Evidence and analysis
- Empirical assessment focused on the central bank’s stated motive (containing excessive exchange rate volatility) versus realized behavior (also “leaning against the wind”).
- Asymmetric reaction function observed:
- Forex sales respond to volatility.
- Forex purchases do not respond to volatility.
- Asymmetric effectiveness documented between interventions aimed at countering appreciation pressures versus depreciation pressures.
Subject coverage and keywords
- Subject: Balance of payments; Capital flows; Currency markets; Depreciation; Exchange rates; Financial markets; Foreign exchange; National accounts
- Keywords: Capital flows; characterization FX; Currency markets; data availability; Depreciation; exchange rate volatility; Exchange rates; FX intervention; FX pressure; FX purchase; FX sale; FX volatility; Global; reaction function; WP