The Relative Effectiveness of Spot and Derivatives Based Intervention: The Case of Brazil
36 Pages Posted: 7 Mar 2017
Date Written: January 2017
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: Suggested Citation