The Empirics of Foreign Exchange Intervention in Emerging Market Countries: The Cases of Mexico and Turkey
By Roberto Guimarães, Cem Karacadag. Social Science Research Network, 2004
125 citations recorded by the source corpus.
This paper analyzes the effects of intervention on the level and volatility of the exchange rate in Mexico and Turkey, two emerging countries that have floating exchange rate regimes. The paper finds mixed evidence on the effectiveness of intervention. In Mexico, foreign exchange sales have a small impact on the exchange rate level and raise short-term volatility, while in Turkey, intervention does not appear to affect the exchange rate level but reduces its shortterm volatility. In both cases, the findings are consistent with officially stated policy objectives, which aim to minimize the effect of intervention on the exchange rate, but cast doubt on claims that intervention is a useful tool for smoothing volatility. Although these findings cannot be generalized to other emerging markets, intervention`s apparently limited effectiveness highlights the need for central banks to use their scarce foreign reserves selectively and parsimoniously.
Subfields: Economics and Econometrics, Finance
View Paper: https://www.semanticscholar.org/paper/7e4b00828580fb0c7135455b2d6773c2bf021be1
Citations in the corpus
- Flexible Inflation Targets, Forex Interventions and Exchange Rate Volatility in Emerging Countries (2012, unknown): “In fact, we clearly reject the null hypothesis in (5), so that negative interventions in IT and non-IT countries have a different impact on the volatility.(21) Second, regarding the sign of interventions, the sales of reserves tend to be significant in IT countries in both subsamples (the estimates ”
- The Effectiveness of Foreign Exchange Intervention in Emerging Market Countries: Evidence from the Czech Koruna (2007, unknown): “Finally, a number of studies found mixed results with respect to intervention’s impact on the level of the exchange rate including Holub (2004), Barabás (2003), and Abenoja (2003) for the Czech Republic, Hungary, and the Philippines, respectively.”