FX interventions in Brazil: a synthetic control approach∗

In the aftermath of the Taper Tantrum episode, the Central Bank of Brazil announced a major program of intervention in foreign exchange markets on August 2013, with daily sales of FX futures settling in domestic currency swaps that provided insurance against a depreciation of the real. We analyze the effect of that program on the level and volatility of the exchange rate using a synthetic control approach. Our counterfactual results suggest that program led to an appreciation of the Brazilian in excess of 10 percent. Some of our estimates also point to a decline in the option-implied volatility. A second announcement extending the program had a more muted effect on the exchange rate. Subsequent extensions had little or no impact, likely because they were already expected and priced-in by the market. JEL classification codes: F31, G14.