Motives and Effectiveness of Forex Interventions: Evidence from Peru
32 Pages Posted: 6 Feb 2015
Date Written: December 2014
This 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 results of this paper show that, in practice, the interventions seem to have aimed at “leaning against the wind” as well. The results also 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. Similarly, the paper documents evidence of asymmetry in the effectiveness of forex interventions.
Keywords: Foreign exchange intervention, Peru, Exchange rates, Foreign exchange reserves, Capital flows, FX intervention, FX purchase, FX sale, FX volatility, central bank, portfolio, capital inflows, market, financial system, interest, spot market, interest rates, transactions, investment, trading, share, monetary fund, exchange rate movements, capital outflows, fund managers, pension fund, fiscal policies, macroeconomic risks, instruments, push factors, financial crisis, reserve bank, emerging economies, foreign direct investment, derivatives market, stock, portfolio inflows, credit growth, asset price, issuance, bond issuance, options, financial flows, securities, real exchange rate, swaps
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