On Central Bank Interventions in the Mexican Peso/Dollar Foreign Exchange Market

40 Pages Posted: 27 Feb 2014

Date Written: September 2013

Abstract

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 that occurred in periods of great stress for the Mexican economy. 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-style microstructure approach. We use the bid-ask spreads as a measure of liquidity and of orderly conditions. In general, our results show no indication of an effect in the opposite direction from the one intended for the first intervention and are fairly conclusive regarding a significant reduction on the bid-ask spread for the second intervention.

Keywords: foreign exchange rate, central bank interventions, microstructure

JEL Classification: E5, F31

Suggested Citation

Garcia-Verdu, Santiago and Zerecero, Miguel, On Central Bank Interventions in the Mexican Peso/Dollar Foreign Exchange Market (September 2013). BIS Working Paper No. 429, Available at SSRN: https://ssrn.com/abstract=2390171

Santiago Garcia-Verdu (Contact Author)

Bank of Mexico

No Address Available

Miguel Zerecero

University of California, Irvine ( email )

3151 Social Science Plaza A University of Califor
Irvine, CA 92617
United States

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