Unlike common wisdom, sterilized FX purchases under inflation targeting, i.e., those that keep the interest rate at the level targeted by the central bank, generally increase aggregate demand. We resort to a simple model with a credit channel to argue that FX purchases, by funding bank credit,...

We analyze the unique intervention strategy of the BCB using DNDFs (Domestic-Non-Deliverable Forwards): currency forwards that settle in domestic currency. We show the mechanisms through which DNDFs provide efficient hedging instruments for economic agents in times of reduced capital inflows and...

The taper tantrum of May 2013 generated sharp fall in risky assets prices, including the depreciation of several emerging market currencies. To fight excess volatility and exchange rate overshooting, the Central Bank of Brazil announced a major program of interventions in foreign exchange...