Impact of Foreign Exchange Interventions on Exchange Rate Expectations

16 Pages Posted: 6 Oct 2014

See all articles by Ken Miyajima

Ken Miyajima

Bank for International Settlements (BIS) - Monetary and Economic Department

Carlos Montoro

Central Reserve Bank of Peru

Date Written: October 2013

Abstract

Using monthly data for four selected emerging economies, we find that sterilised central bank foreign exchange intervention has little systematic influence on near-term nominal exchange rate expectations in the direction intended by the central banks. In other words, central bank dollar purchases to stem exchange rate appreciation or related exchange rate volatility are not associated with an adjustment of near-term exchange rate forecasts in the direction of depreciation, and vice versa. This suggests that intervention may not change near-term exchange rate expectations. Moreover, intervention may have unintended effects in the sense that it can lead to undesired volatility in the exchange rate, which is consistent with previous studies.

Full publication: Market Volatility and Foreign Exchange Intervention in EMEs: What Has Changed?

Keywords: exchange rate expectation, foreign exchange intervention

JEL Classification: D84, E58, F31

Suggested Citation

Miyajima, Ken and Montoro, Carlos, Impact of Foreign Exchange Interventions on Exchange Rate Expectations (October 2013). BIS Paper No. 73d, Available at SSRN: https://ssrn.com/abstract=2497133

Ken Miyajima (Contact Author)

Bank for International Settlements (BIS) - Monetary and Economic Department ( email )

Centralbahnplatz 2
CH-4002 Basel
Switzerland

Carlos Montoro

Central Reserve Bank of Peru ( email )

Jirón Miroquesada 441
Lima, Lima 1
Peru

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