Cover; Unveiling the Effects of Foreign Exchange Intervention: A Panel Approach; Abstract; 1 Introduction; 2 Econometric Analysis; 2.1 Approach; 2.2 Main results; 2.3 Main Robustness Checks; 2.4 Other robustness checks; 3 Extensions; 3.1 Dynamic Effects; 3.2 Asymmetric effects; 4 Conclusions; References; Annex 1 Proxies for FXI; Annex 2 Capital controls; Appendix
Summary
"We study the effect of foreign exchange intervention on the exchange rate relying on an instrumental-variables panel approach. We find robust evidence that intervention affects the level of the exchange rate in an economically meaningful way. A purchase of foreign currency of 1 percentage point of GDP causes a depreciation of the nominal and real exchange rates in the ranges of [1.7-2.0] percent and [1.4-1.7] percent respectively. The effects are found to be quite persistent. The paper also explores possible asymmetric effects, and whether effectiveness depends on the depth of domestic financial markets
