There is a general lack of consensus within the literature on the question of how to intervene in the foreign exchange market. Are secret (dirty) interventions more powerful than pre-announced interventions? This paper compares the effects of pre-announced day-to-day intervention with respect to discretionary intervention, by combining a Tobit-GARCH policy function with an asymmetric power PGARCH impact function. Using Colombia as a case study, we show that the impact of pre-announced daily interventions, adopted in 2008, is larger than the impact of dirTY interventions adopted during 2004–2007. In terms of the former, we find that the impact of a change in daily interventions (from US$ 20 million to US$ 40 million) raises the exchange rate by approximately COP $2, implying that actual interventions of US$ 1000 million depreciate domestic currency by 5.5%. Additionally, we find that capital controls had a positive effect on the exchange rate.
