Template-Type: ReDIF-Paper 1.0
Author-Name: Damiano Sandri
Author-X-Name-First: Damiano
Author-X-Name-Last: Sandri
Title: FX Intervention to Stabilize or Manipulate the Exchange Rate? Inference from Profitability
Abstract: We analyze the profitability of FX swaps used by the central bank of Brazil to shed light on the rationale for FX intervention. We find that swaps are profitable from an ex-ante perspective, suggesting that FX intervention is used to stabilize the exchange rate against temporary excessive fluctuations relative to UIP conditions. Consistent with this interpretation, we document that the direction and size of FX intervention respond to UIP deviations. We also find that FX intervention respond more aggressively to UIP deviations when there is less uncertainty about the future level of the exchange rate and when the exchange rate is overvalued.
Creation-Date: 2022-12
File-URL: https://www.bis.org/publ/work1059.pdf
File-Format: Application/pdf
File-Function: Full PDF document
File-URL: https://www.bis.org/publ/work1059.htm
File-Format: text/html
Number: 1059
Keywords: FX intervention, profitability, exchange rate
Classification-JEL: E58, F31
Handle: RePEc:bis:biswps:1059