Factors Influencing Emerging Market Central Banks’ Decision to Intervene in Foreign Exchange Markets

29 Pages Posted: 30 Mar 2013

See all articles by Matthew Malloy

Matthew Malloy

Board of Governors of the Federal Reserve System

Date Written: March 2013

Abstract

Using panel data for 15 economies from 2001-12, I identify determinants of central bank foreign exchange intervention in emerging markets (“EMs”) with flexible to moderately managed exchange rates. Similar to other studies, I find that central banks tend to “lean against the wind,” buying/selling more foreign exchange in response to greater short-run and medium-run appreciation/depreciation pressures. The panel structure provides a framework to test whether other macroeconomic variables influence the different rates of reserve accumulation between economies. In testing other variables, I find evidence of both precautionary and external competitiveness motives for reserve accumulation.

JEL Classification: F31

Suggested Citation

Malloy, Matthew, Factors Influencing Emerging Market Central Banks’ Decision to Intervene in Foreign Exchange Markets (March 2013). IMF Working Paper No. 13/70, Available at SSRN: https://ssrn.com/abstract=2241918

Matthew Malloy (Contact Author)

Board of Governors of the Federal Reserve System

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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