What drives forex interventions? Evidence from the Brazilian Central Bank interventions on the BRL/USD market
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Abstract
In this paper we study what drives buy-side and sell-side probabilities of intervention by the Brazilian Central Bank (BCB) on the USD/BRL spot market between 1999 and 2010. BCB’s forex interventions seem to be related to the exchange rate returns and volatility as well as to the spread between domestic and foreign interest rates. Lagged interventions also appear to have an effect on current interventions. Our findings suggest that the operation of the policymaker in the forex market may serve as a signaling of a possible coordination between BCB’s foreign and monetary policies along with the possibility of an unofficial adoption of an exchange rate band.
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