Mundaca, B. Gabriela2012-03-192012-03-192011-02-01https://hdl.handle.net/10986/3345Intervention operations in the foreign exchange market are used by the Banco Central de Reserva del Peru to manage both the level and volatility of their exchange rates. The Banco Central de Reserva del Peru provides information to the market about the specific hours of the day interventions would take place and the total amount of intervention. It consistently buys and sells on the foreign exchange market to avoid large appreciations and depreciations of the Peruvian nuevo sol against the U.S. dollar (Sol/USD), respectively. The estimates in this paper indicate that past information on interventions has moved the sol in the intended direction but only during the time the Banco Central de Reserva del Peru has announced it would be active in the foreign exchange market. The authors also find that the expectation of future interventions by the Banco Central de Reserva del Peru decreases the volatility of the sol when it intervenes to avoid an appreciation of the sol; however, the opposite occurs when the intervention takes place to defend the sol from depreciation. Indeed, the sol has been less volatile during periods when the Banco Central de Reserva del Peru has intervened than otherwise.CC BY 3.0 IGOADVERSE SELECTIONASSET HOLDINGSASYMMETRIC INFORMATIONAVERAGE EXCHANGE RATEBALANCE SHEETSBAND REGIMESBIDCAPITAL MARKETCENTRAL BANKCENTRAL BANKSCOMMERCIAL BANKSCOORDINATION FAILURESCURRENCYDEPENDENT VARIABLEDEPENDENT VARIABLESDEPOSITSDEPRECIATIONDEPRECIATIONSDERIVATIVESDEVELOPMENT ECONOMICSDISCOUNT RATEDOMESTIC CURRENCYDUMMY VARIABLESECONOMIC REVIEWECONOMIES OF SCALEEMERGING ECONOMIESEMERGING MARKETSENDOGENOUS VARIABLESERROR TERMSEXCHANGE RATEEXCHANGE RATE BANDEXCHANGE RATE DATAEXCHANGE RATE LEVELEXCHANGE RATE RISKEXCHANGE RATE RISKSEXCHANGE RATE UNCERTAINTYEXCHANGE RATE VOLATILITYEXCHANGE RATESEXPLANATORY VARIABLESFINANCIAL CRISISFINANCIAL DOLLARIZATIONFINANCIAL INSTRUMENTSFINANCIAL MARKETSFINANCIAL STUDIESFLEXIBLE EXCHANGE RATEFOREIGN CURRENCYFOREIGN CURRENCY LIABILITIESFOREIGN EXCHANGEFOREIGN EXCHANGE MARKETFOREIGN EXCHANGE MARKET INTERVENTIONFOREIGN EXCHANGE MARKETSFOREIGN EXCHANGE RESERVESFOREIGN EXCHANGE TRANSACTIONSFOREIGN RESERVESFOREIGN TRADEGOVERNMENT INTERVENTIONSHIGH VOLATILITYINFLATIONINFLATION TARGETINFLATION TARGETINGINFLATION TARGETING FRAMEWORKINFLATION TARGETING REGIMEINFORMATION ASYMMETRYINTEREST RATEINTEREST RATESINTERNATIONAL BANKINTERNATIONAL MONEYINTERNATIONAL RESERVESINTERNATIONAL SETTLEMENTSINTERNATIONAL TRADELIQUIDITYLIQUIDITY RISKSLONG-TERM INSTRUMENTSMARKET EXPECTATIONSMARKET PARTICIPANTMARKET PARTICIPANTSMATURITIESMONETARY AUTHORITIESMONETARY POLICIESMONETARY POLICYMONETARY POLICY REGIMESNEGATIVE SHOCKSNOMINAL ANCHOROPTIMAL INTERVENTIONPOLICY CREDIBILITYPOLICY RESEARCHPRIVATE SECTORPUBLIC DEBTRANDOM DISTURBANCESRANDOM WALKREPUTATIONRESERVESRETURNSSTANDARD DEVIATIONSTORE OF VALUETRANSACTIONS COSTSUNCERTAINTYVOLATILITYYIELD CURVEWorld Bank10.1596/1813-9450-5579