Impact of Foreign Exchange Interventions on Exchange Rate Expectations
16 Pages Posted: 6 Oct 2014
Date Written: October 2013
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.
Keywords: exchange rate expectation, foreign exchange intervention
JEL Classification: D84, E58, F31
Suggested Citation: Suggested Citation