Can Foreign Exchange Intervention Stem Exchange Rate Pressures from Global Capital Flow Shocks?

By Olivier J. Blanchard, Gustavo Adler, I. E. C. Filho. Social Science Research Network, 2015

138 citations recorded by the source corpus.

Many emerging market economies have relied on foreign exchange intervention (FXI) in response to gross capital inflows. In this paper, we study whether FXI has been an effective tool to dampen the effects of these inflows on the exchange rate. To deal with endogeneity issues, we look at the response of different countries to plausibly exogenous gross inflows, and explore the cross country variation of FXI and exchange rate responses. Consistent with the portfolio balance channel, we find that larger FXI leads to less exchange rate appreciation in response to gross inflows.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/021a72ae540f01cd09c51df7613b0c55f3bba8bb

Citations in the corpus

• The Real Exchange Rate and Economic Growth: Revisiting the Case Using External Instruments (2017, unknown): “The relevance of this instrument is supported by a recent study by Blanchard et al. (2015) who find that larger foreign exchange intervention leads to less exchange rate appreciation in response to gross capital inflows.”
• Real exchange rate policies for economic development (2017, unknown): “See Greenwald and Stiglitz (2014a), (2014b).”
• Are Capital Inflows Expansionary or Contractionary? Theory, Policy Implications, and Some Evidence (2015, unknown): “We found the effects to be insignificant, for both bond and 13This approach follows Blanchard et al (2015). non-bond flows.”