A study of the Effectiveness of Central Bank Intervention in BRICS countries

Abstract

This paper examined the Effectiveness of the intervention of the central bank and macroeconomic indicators with the exchange rates among BRICS countries. We found that foreign exchange intervention in Russia, India and China can reduce exchange rate volatility; thereby, they may be presumed effective in reducing the exchange rate volatility. Interestingly, the intervention by the central bank of Brazil was found to be insignificant, while the intervention from South Africa's central bank was found to increase exchange rate volatility. Based on these results, we conclude that the intervention of the central banks in Brazil and South Africa is ineffective in controlling volatility. The empirical results show an asymmetry in central bank intervention and the presence of Purchasing Power Parity theory in BRICS nations. More than that, the study found that the central bank fears appreciation rather than depreciation. JEL Code: E58, F31.