This paper analyses the effects of sterilised, intraday foreign exchange market operations (non-discretionary and discretionary) on foreign exchange returns and volatility in four inflation targeting economies in Latin America. The distribution of exchange rates during intervention and non-intervention days are first compared, and then event study regressions are used to estimate the impact of intervention (and macro surprises) on exchange rate returns and exchange rate volatility as well as on foreign exchange market turnover (in Colombia). In general, the results suggest that the impact of both non-discretionary and discretionary operations is at times significant but transitory. However, an analysis of Chile's experience suggests that the announcement effects of even non-discretionary programmes may be significant and persistent.
In recent years the Bank of Mexico has made a series of rules-based interventions in the peso/dollar foreign exchange market. We assess the effectiveness of two specific interventions. These were the "Dollar auctions with minimum price", active between October 2008 and April 2010, and the "Dollar auctions without minimum price", implemented from March to September, 2009. Broadly speaking, the aims of these two interventions were, respectively, to provide liquidity and to promote orderly conditions in the foreign exchange market. For our analysis, we follow the framework implemented by Dominguez (2003) and Dominguez (2006), an event study microstructure approach. We use the bid-ask spreads as a measure of liquidity and, also, of orderly conditions. In general, our results show no indication of an effect in the bid-ask spread for the first intervention, and are fairly conclusive regarding a significant reduction in it for the second intervention, yet, it is important to consider the limitations of our estimation methodology.
Information extracted from financial derivatives on interest rates is commonly used to forecast movements in interest rates. However, such an extraction generally assumes that agents are risk-neutral, which is not necessarily the case. Accordingly, it might be useful to account for the agents’ risk-aversion when doing these forecasts, which one can implement by adding a risk-correction. In this context, we use TIIE-28 swaps to forecast changes in monetary policy in Mexico, using a set of financial variables to account for the risk-correction. We assess whether models with a risk-correction outperform the TIIE-28 swaps rates, and find that the in-sample explained variability improves when using a risk-correction. Centrally, we document that our main model’s out-of-sample forecasts are similar for short horizons (3-month), and statistically significantly better for longer horizons (9 to 24-month), compared to the direct use of TIIE-28 swaps interest rates.
Resumen: Este documento presenta un análisis de la distribución de las expectativas de inflación con base en las encuestas entre analistas económicos del sector privado, realizadas por el Banco de México. Conceptualmente el análisis se puede dividir en tres rubros: el nivel, la dispersión y el sesgo, de la inflación esperada. Se espera que el comportamiento de dichos rubros sea congruente con el proceso de convergencia de la inflación a su meta, en el sentido de que el nivel de las expectativas de inflación, la dispersión de las expectativas de inflación y la probabilidad de observar una realización de inflación mayor han venido disminuyendo conforme ha venido tomando lugar dicho proceso. Adicionalmente, primero, se presenta un modelo en el cual los agentes incurren en un costo para actualizar sus expectativas de inflación.
scite is a Brooklyn-based organization that helps researchers better discover and understand research articles through Smart Citations–citations that display the context of the citation and describe whether the article provides supporting or contrasting evidence. scite is used by students and researchers from around the world and is funded in part by the National Science Foundation and the National Institute on Drug Abuse of the National Institutes of Health.