Economics, Econometrics and Finance
3 years ago

Peru's Central Bank uses FX interventions to stabilize economy effectively.

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Documento de trabajo
Does the Central Bank of Peru Respond to Exchange Rate Movements? A Bayesian Estimation of a New Keynesian DSGE Model with FX Interventions
Gabriel Castillo, Paúl Castillo, Harumi Hasegawa

Paper Summary

The study looked at how the Central Bank of Peru sets interest rates based on exchange rate movements and foreign exchange (FX) interventions. They used a model to analyze data from before and after Inflation Targeting (IT) was implemented. The results showed that the Central Bank did not adjust interest rates based on changes in the exchange rate, but did actively intervene in the FX market. The model also found that the response to inflation was strong, the response to the output gap was significant, and FX interventions helped stabilize GDP during economic shocks in Peru.

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