The Relative Effectiveness of Spot and Derivatives Based Intervention: The Case of Brazil

36 Pages Posted: 7 Mar 2017

See all articles by Milan Nedeljkovic

Milan Nedeljkovic

FEFA - Faculty of Economics, Finance and Administration; CESifo (Center for Economic Studies and Ifo Institute)

Christian Saborowski

International Monetary Fund (IMF)

Date Written: January 2017

Abstract

This paper studies the relative effectiveness of foreign exchange intervention in spot and derivatives markets. We make use of Brazilian data where spot and non-deliverable futures based intervention have been used in tandem for more than a decade. The analysis finds evidence in favor of a significant link between both modes of intervention and the first two moments of the real/dollar exchange rate. As predicted by theory for the case of negligible convertibility risk, the impact of spot market intervention in our baseline sample is strikingly similar to that achieved through futures based intervention worth an equivalent amount in notional principal.

Keywords: Foreign exchange intervention, Brazil, Financial derivatives, Spot exchange rates, Derivative markets, Exchange rates, Econometric models, FX Intervention; Derivatives; Exchange rates

JEL Classification: F31, G10, E50

Suggested Citation

Nedeljkovic, Milan and Saborowski, Christian, The Relative Effectiveness of Spot and Derivatives Based Intervention: The Case of Brazil (January 2017). IMF Working Paper No. 17/11. Available at SSRN: https://ssrn.com/abstract=2924363

Milan Nedeljkovic (Contact Author)

FEFA - Faculty of Economics, Finance and Administration ( email )

Bulevar Zorana Djindjica 44
Belgrade, +381
Serbia

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

Christian Saborowski

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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