2011年-世界发展银行全球_How_Does_Public_Information_on_Central_Bank_Intervention_Strategies_Affect_Exchange_Rate_Volatility__34页_1mb

Summary of "How Does Public Information on Central Bank Intervention Strategies Affect Exchange Rate Volatility? The Case of Peru"

Core Content

This working paper investigates the impact of public information on central bank intervention strategies on exchange rate volatility, using the case of Peru. The Banco Central de Reserva del Peru (BCRP) employs both continuous and discrete interventions to manage the level and volatility of the Peruvian sol against the U.S. dollar (Sol/USD). The study aims to understand how these interventions, especially when announced publicly, influence market expectations and, consequently, the exchange rate and its volatility.

Main Points

• BCRP's Policy Objectives: The BCRP has an inflation targeting framework and also aims to stabilize the exchange rate by managing its volatility. Given Peru's dual-currency economy, the BCRP cannot ignore the role of the exchange rate in monetary policy.

• Intervention Timing and Amount: The BCRP announces the time frame for interventions (11:00 am to 1:00 pm) and the total amount of intervention each day. This public information is intended to reduce uncertainty and signal the central bank's commitment to its goals.

• Exchange Rate Volatility: The paper finds that the sol is less volatile during periods when the BCRP is active in the foreign exchange market. However, the expectation of future interventions affects volatility differently depending on whether the intervention is aimed at preventing appreciation or depreciation.

• Empirical Analysis: The study uses intra-daily exchange rate data from 2004 to 2009 to analyze the impact of public and private information on the sol/USD exchange rate. It differentiates between the effects of past interventions and expectations of future ones.

• Theoretical Model: A stochastic optimal control model is proposed, which incorporates both continuous and discrete interventions. The model assumes that the central bank aims to minimize the cost of exchange rate deviations and the cost of interventions.

• Reaction Function: The BCRP's reaction function is estimated using probit maximum likelihood (ML) methods, considering past and expected future interventions as endogenous variables. The model accounts for the central bank's decisions based on the exchange rate's movements and spreads.

• Volatility and Expectations: The paper shows that the volatility of the sol/USD is influenced not only by the ARCH process but also by the correlation with intervention variables. The expectation of future interventions can reduce or increase volatility, depending on the direction of the intervention.

Key Information

• Data Source: The study uses data provided by the BCRP, including net interventions, bid and ask prices, and spreads.

• Variables and Statistics:

  • Net interventions: 1483 observations, mean = 14.5945, standard deviation = 60.2236.
  • Accumulated interventions over the last 4 days: 1484 observations, mean = 58.5201, standard deviation = 194.8345.
  • Bid and ask prices at 11:00 am and 1:00 pm are analyzed, showing the average sol/USD rate and spread.
  • The log differences in exchange rates are used to measure volatility, with the highest volatility observed between August and December 2008.

• Empirical Results:

  • The BCRP's interventions are more effective in reducing volatility when they are aimed at preventing appreciation.
  • The sol is less volatile during the BCRP's intervention hours (11:00 am to 1:00 pm) compared to other times of the day.
  • The central bank's intervention decisions are modeled as endogenous variables, with the expectation of future interventions influencing both the level and volatility of the exchange rate.

• Conclusion: The study highlights the importance of public information in shaping market expectations and influencing exchange rate behavior. It also suggests that the BCRP's intervention strategy, which includes both continuous and discrete actions, plays a crucial role in stabilizing the sol/USD exchange rate and reducing its volatility.

Structure of the Paper

1. Introduction: Sets the context of central bank intervention in emerging economies and outlines the BCRP's role in managing exchange rate volatility.
2. Theoretical Model: Proposes a stochastic optimal control model for central bank interventions.
3. Key Aspects of Intervention Policies: Summarizes the BCRP's intervention strategies and statistical findings.
4. Empirical Model: Describes the estimation approach, including the reaction function and the conditional mean and variance of the exchange rate.
5. Empirical Results: Presents the findings from the estimation of the BCRP's reaction function and the effects of interventions on exchange rate volatility.
6. Conclusion: Summarizes the implications of the study for understanding the role of public information in central bank interventions and its impact on exchange rate volatility.