Is foreign exchange intervention through derivative instruments effective? : an analysis of the Peruvian case

This paper presents an empirical analysis of the effectiveness of foreign exchange (FX) intervention in Peru, with emphasis on the intervention carried out through derivative instruments. I use two different but related approaches to estimate the impact of these kind of interventions between 2014 and 2023. First, I estimate a proxy SVAR with daily data which uses an instrument constructed with intraday data. Results show that FX interventions have an impact on the level of the exchange rate in the expected direction: an FX sale intervention of between USD 60 and USD 120 million generates an appreciation of between 0.02 and 0.04 percent of the currency in the same day. On the other hand, spot intervention is found to be slightly more effective. The estimations, however, do not provide sufficient evidence to conclude on the impact on the exchange rate volatility in the short run. Second, I estimate event study regressions with intraday data, which allowed to confirm that these interventions have the expected effect after around 10 minutes. However, no evidence of the existence of an information channel is found since the announcement of these interventions does not significantly impact the exchange rate.