An analysis of the interventions of the Central Reserve Bank of Peru in the foreign exchange market: 1999–2001

This article examines the interventions by the Central Reserve Bank of Peru (BCR) in the foreign exchange market between 1999 and 2001, evaluating their timing, effectiveness, and the factors influencing these processes. During this period, the BCR carried out 47 interventions—33 purchases and 14 sales—with the aim of preventing sharp fluctuations in the exchange rate. Using daily data and an econometric approach, logit/probit models and ordinary least squares were applied to analyze the effectiveness of the interventions and their determining factors. The results show that 64% of these interventions were effective and, in addition, succeeded in reducing intraday exchange rate volatility. The analysis indicates that the success and timing of the interventions in the foreign exchange market are strongly correlated with market conditions, such as the previous exchange rate level, volatility, and trading volume. The implications of these findings suggest that establishing fixed intervention rules could optimize the effectiveness of the BCR’s exchange rate policy. (Abstract and audio: Department of Economic Publications)