Exchange rate dynamics, structural breaks, and central bank interventions in Colombia

Main Article Content

Jorge Mario Uribe
Natalia Restrepo López

Keywords

Colombia, exchange rate behavior, martingale, multiple breaks, random walk, structural breaks.

Abstract

We evaluate the effectiveness of the Colombian Central Bank´s interventions in the foreign exchange market during the period 2000 to 2014. We examine the stochastic process that describes the exchange rate, with a focus on the detection of structural breaks or unit roots in the data to determine whether the Central Bank´s interventions were effective. We find that the exchange rate can be described either by a random walk or by a trend-stationary model with multiple breaks. In neither cases do we find any evidence that the exchange rate was affected by the Central Bank interventions.

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