An Analysis of the Effectiveness of Exchange Rate Interventions in Peru

Beyond their role in building up international reserves, official interventions in the foreign exchange market are becoming less and less common as tools of macroeconomic policy. In Peru, however, economic authorities have actively carried out such interventions over the past few years. This article explores the effectiveness of the Central Reserve Bank of Peru’s (BCRP) foreign exchange interventions in the spot foreign exchange market during the 2003–2015 period through an event study and the estimation of a threshold econometric model. The evidence suggests that the BCRP’s interventions were effective in smoothing exchange rate volatility and generating counter-trend movements during periods of extreme volatility in the foreign exchange market.