Unveiling the Effects of Foreign Exchange Intervention : A Panel Approach

We study the effect of foreign exchange intervention on the exchange rate relying on aninstrumental-variables panel approach. We find robust evidence that intervention affects thelevel of the exchange rate in an economically meaningful way. A purchase of foreign currencyof 1 percentage point of GDP causes a depreciation of the nominal and real exchange rates inthe ranges of [1.7-2.0] percent and [1.4-1.7] percent respectively. The effects are found to bequite persistent. The paper also explores possible asymmetric effects, and whethereffectiveness depends on the depth of domestic financial markets.
Publication date: June 2015
ISBN: 9781513514864
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Economics- Macroeconomics , Economics / General , International - Economics , exchange rate , exchange , exchange rates , central bank

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