The effectiveness of forex interventions in four Latin American countries

Many central banks actively intervene in the forex market, although there is no consensus on its impact on the exchange rate level and volatility. We analyze the effects of daily forex interventions in four Latin American economies with inflation targets – namely, Chile, Colombia, Mexico and Peru – by fitting GARCH-type models. These countries represent a broad span of intervention strategies in terms of size and frequency, ranging from pure discretional to rule-based interventions. We find that only first interventions, either isolated or the initial one in a rule-based series, are able to reduce exchange rate volatility, whereas their size plays a minor role. •We analyze the impact of daily forex interventions on the exchange rate.•We study this issue for Chile, Colombia, Mexico and Peru.•First interventions reduce exchange rate volatility. Their size plays a minor role.•Our results support the signaling channel of sterilized interventions.