Foreign exchange market intervention and asymmetric preferences

Abstract

Central banks in many emerging market economies intervene in currency markets to mitigate volatility and counter appreciation/depreciation pressure. This paper investigates whether central banks in twenty four emerging economies are “leaning against the wind” in their intervention strategies, whether they have an asymmetric response to exchange rate movements, and whether the response changes after the Global Financial Crisis. Our empirical investigation finds solid evidence that they prefer to dampen appreciation pressures more substantially than depreciation pressures, even after the crisis.