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Foreign Exchange Intervention: A Shield Against Appreciation Winds?

Author

Listed:
  • Gustavo Adler
  • Mr. Camilo E Tovar Mora
Abstract
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.

Suggested Citation

  • Gustavo Adler & Mr. Camilo E Tovar Mora, 2011. "Foreign Exchange Intervention: A Shield Against Appreciation Winds?," IMF Working Papers 2011/165, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2011/165
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    References listed on IDEAS

    as
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    6. José Darío Uribe & Jorge Toro, 2005. "Foreign exchange market intervention in Colombia," BIS Papers chapters, in: Bank for International Settlements (ed.), Foreign exchange market intervention in emerging markets: motives, techniques and implications, volume 24, pages 139-49, Bank for International Settlements.
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    8. José Julián Sidaoui, 2005. "Central banking intervention under a floating exchange rate regime: ten years of Mexican experience," BIS Papers chapters, in: Bank for International Settlements (ed.), Foreign exchange market intervention in emerging markets: motives, techniques and implications, volume 24, pages 209-30, Bank for International Settlements.
    Full references (including those not matched with items on IDEAS)

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