The Effectiveness of Currency Intervention in a Commodity-Exporter: Evidence from Mongolia

Abstract

Although EME central banks actively intervene in currency markets, there is a long-running debate as to its effectiveness in affecting exchange rates. In this study, we use unique daily data on currency interventions in Mongolia to analyze the impact of these interventions on the changes in the MNT/USD exchange rate. The results indicate that currency intervention is effective in Mongolia, although it differs in certain ways. Currency sales are effective in moving changes in the MNT/USD in the correct direction, especially when carried out in larger amounts and when implemented frequently. This effect can last from one to three weeks, although we find the magnitude of the daily effect to be relatively small. We do not find evidence, however, that currency purchases are effective. These findings are comparable to the existing literature on the effectiveness of intervention in EMEs.