Foreign Exchange Interventions, Signalling and Intermediary Constraints

Foreign Exchange Interventions, Signalling and Intermediary Constraints

• Author
• Alex Luiz Ferreira
• Co-authors
• Rory Mullen , Giovanni Ricco , Ganesh Viswanath-Natraj , Zijie Wang
• Abstract

• We analyze the impact of unanticipated foreign exchange intervention in the Brazilian market. Using 20 years of data, we find surprise spot sales of USD reserves by the Brazilian Central Bank led to an appreciation of the Brazilian Real and reduced covered interest rate parity violations. Spot interventions have a greater impact than swaps, especially during periods of global intermediary constraints. These results suggest that dollar liquidity provision lowers the relative cost of borrowing USD through FX markets, enhancing efficiency. However, evidence supporting the signalling channel is weak, with insignificant interest rate changes observed in intra-day data and survey-based forecasts.

• Keywords
• Exchange Rate; Central Bank; Interventions; Yield Curve; Asset pricing
• Modality
• Comunicação oral
• Subject Area
• Apreçamento de Ativos (Asset Pricing)

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