Empirical Economics

, Volume 55, Issue 3, pp 1319–1336 | Cite as

The impact of pre-announced day-to-day interventions on the Colombian exchange rate

  • Juan J. Echavarría
  • Luis F. Melo-Velandia
  • Mauricio Villamizar-VillegasEmail author


There is a general lack of consensus within the literature on the question of how to intervene in the foreign exchange market. Are secret (dirty) interventions more powerful than pre-announced interventions? This paper compares the effects of pre-announced day-to-day intervention with respect to discretionary intervention, by combining a Tobit-GARCH policy function with an asymmetric power PGARCH impact function. Using Colombia as a case study, we show that the impact of pre-announced daily interventions, adopted in 2008, is larger than the impact of dirty interventions adopted during 2004–2007. In terms of the former, we find that the impact of a change in daily interventions (from US$ 20 million to US$ 40 million) raises the exchange rate by approximately COP $2, implying that actual interventions of US$ 1000 million depreciate domestic currency by 5.5%. Additionally, we find that capital controls had a positive effect on the exchange rate.


Central bank intervention Reaction function Tobit-GARCH Foreign exchange intervention Capital controls 

JEL Classification

E52 E58 F31 


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Copyright information

© Springer-Verlag GmbH Germany 2017

Authors and Affiliations

  1. 1.Banco de la República de ColombiaBogotáColombia

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