The Effectiveness of Currency Intervention in a Commodity-Exporter: Evidence from Mongolia
50 Pages Posted: 9 Apr 2020 Last revised: 16 Apr 2020
Date Written: March 31, 2020
Abstract
Although EME central banks actively intervene in currency markets, there is a long-running debate as to its effectiveness in affecting exchange rates. In this study, we use unique daily data on currency interventions in Mongolia to analyze the impact of these interventions on the changes in the MNT/USD exchange rate. The results indicate that currency intervention is effective in Mongolia, although it differs in certain ways. Currency sales are effective in moving changes in the MNT/USD in the correct direction, especially when carried out in larger amounts and when implemented frequently. This effect can last from one to three weeks, although we find the magnitude of the daily effect to be relatively small. We do not find evidence, however, that currency purchases are effective. These findings are comparable to the existing literature on the effectiveness of intervention in EMEs.
Keywords: Currency intervention, exchange rate, treatment effect, causal effect, local projection, Mongolia
JEL Classification: C14, C32, E58, F31
Suggested Citation: Suggested Citation