Effective Sterilized Foreign Exchange Intervention?: Evidence from a Rule Based Policy

Serie

• Borradores de economía

Resumen

• We investigate the effectiveness of sterilized foreign exchange interventions by exploiting a discontinuous policy rule used by the Central Bank of Colombia (CBoC). We use a unique data set from CBoC comprised of tick by tick intervention and order book data, daily capital in- and outflow data, and balance sheet information of financial institutions. We apply regression discontinuity methods to identify the surprise component of rule based exchange rate interventions of the CBoC and use this variation to measure how interventions affect exchange rates and capital flows. At horizons of a few days, our empirical findings support sterilized exchange rate intervention effectiveness via a portfolio channel. The exchange rate effects we see are short-lived. At horizons of a month or longer, capital flows originating from foreign investors restore the exchange rate back to its original level. Our findings also show that the effects of sterilized interventions are amplified by capital controls. A methodological contribution of the paper is to extend regression discontinuity designs to a time series environment and to show how these techniques can be used to identify and estimate non-linear impulse response functions.

autores

• Kuersteiner, Guido M.
• Phillips, David C.
• Villamizar-Villegas, Mauricio

fecha de publicación

• 2016-10

Área temática

• C22 - Modelos de series temporales; Regresiones cuantiles dinámicas; Modelos dinámicos de tratamiento; procesos de difusión
• E58 - Bancos centrales y sus políticas
• F31 - Tipos de cambio

Enfoque geográfico

• Colombia  Country
• South America  Continent

Líneas de investigación

• Central Bank Policy
• Portfolio Balance
• Regression Discontinuity
• Rule Based Foreign Exchange Interventions

Identificador de objeto digital (DOI)

• https://doi.org/10.32468/be.964

Issue

• 964