A Note on the Effectiveness of Intervention in the Foreign Exchange Market : The Case of the Philippines

This study primarily examines the extent of daily foreign exchange intervention by the Bangko Sentral ng Pilipinas (BSP) between 2005 and 2010, and its effectiveness in controlling the daily volatility of the exchange rate. Using an exponential GARCH model, we find that participation in the spot market remains the main method used by the BSP to influence the volatility of the exchange rate, while intervention in the foreign exchange market through derivatives is secondary. The results also show that the BSP is sensitive to large swings in the exchange rate. However, we find no evidence that the BSP targets a particular exchange rate level over thirty-day or hundred-day trading horizons. With regard to effectiveness, our estimates indicate that the BSP's intervention in the spot market has been effective in containing same-day volatility. The effectiveness of intervention in the foreign exchange market is measured by how significantly spot market intervention and forward transactions influence the daily return on the exchange rate. Over longer trading days, our results show that intervention at larger volumes or sustained central bank actions are significant in managing large fluctuations in the exchange rate.Full publication: "http://ssrn.com/abstract=2420030" Market Volatility and Foreign Exchange Intervention in EMEs: What Has Changed?