How Does Public Information on Central Bank Intervention Strategies Affect Exchange Rate Volatility?
Intervention operations in the foreign exchange market are used by the Banco Central de Reserva del Peru to manage both the level and volatility of their exchange rates. The Banco Central de Reserva del Peru provides information to the market about...
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| Language: | English |
| Published: |
2012
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| Online Access: | http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20110228103637 http://hdl.handle.net/10986/3345 |
| Summary: | Intervention operations in the foreign
exchange market are used by the Banco Central de Reserva del
Peru to manage both the level and volatility of their
exchange rates. The Banco Central de Reserva del Peru
provides information to the market about the specific hours
of the day interventions would take place and the total
amount of intervention. It consistently buys and sells on
the foreign exchange market to avoid large appreciations and
depreciations of the Peruvian nuevo sol against the U.S.
dollar (Sol/USD), respectively. The estimates in this paper
indicate that past information on interventions has moved
the sol in the intended direction but only during the time
the Banco Central de Reserva del Peru has announced it would
be active in the foreign exchange market. The authors also
find that the expectation of future interventions by the
Banco Central de Reserva del Peru decreases the volatility
of the sol when it intervenes to avoid an appreciation of
the sol; however, the opposite occurs when the intervention
takes place to defend the sol from depreciation. Indeed, the
sol has been less volatile during periods when the Banco
Central de Reserva del Peru has intervened than otherwise. |
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