Estimados Académicos y Académicas FEN,

Les extendemos la invitación al seminario que organiza el Departamento de Economía, en el que se presentará el trabajo titulado "Exchange Rate Determination and Optimal FXI Policy: The Role of Portfolio and Liquidity Shocks".

Expone: Marco A. Ortiz Sosa, Profesor, Departamento Académico de Economía, Universidad del Pacífico de Perú.

Co-autores: Adrián Armas

Abstract: This paper develops a model of incomplete and segmented financial markets to examine exchange rate determination. We analyze how financial intermediaries price in the costs associated with holding long or short positions in foreign exchange and trading away liquid assets for illiquid ones, leading to deviations from uncovered interest rate parity for portfolio and liquidity motives. We demonstrate that the importance of these motives depends on the level of reserve requirements in local currency and the size of portfolio shocks. We use this framework to study the optimal foreign exchange intervention (FXI) policy with both spot and derivatives, where only the former are effective in the case of foreign liquidity shortages. Our analysis shows that when central banks consider sterilization costs associated with spot FX interventions, the optimal policy consists of using spot interventions in case of liquidity shocks and derivatives interventions to hedge FX intermediaries’ positions. Our results have significant implications for policymakers, as they suggest that the use of FX interventions should be carefully calibrated to the specific shocks affecting the financial system, while taking into account the role of reserve requirements in shaping the effectiveness of FXI policies.

El formato será online a través del siguiente link.

Saludos cordiales,

Dirección de Investigación