Effectiveness of Foreign Exchange Interventions: Evidence and Lessons from Chile

In this article we evaluate the effectiveness of the last two foreign exchange interventions (FXI) of the Central Bank of Chile (BCCh), dated 2019 and 2022. Using data with daily and intra-daily frequency for the nominal exchange rate, results show through different empirical methods that both intervention episodes have significant effects in the expected direction on the level and volatility of the exchange rate. The effects associated with the 2019 and 2022 interventions are appreciations of an average of 2% and 6%, respectively. The estimated decrease in volatility is also greater in the 2022 intervention. The results support the implications of the different mechanisms that have been proposed in the literature to understand the effectiveness of FXI. Simultaneously, these results suggest that intervening the forward market seems just as effective as intervening into the spot market.

https://ideas.repec.org/p/chb/bcchwp/983.html