Asymmetries in central bank intervention

When the exchange rate is either fixed or floating, the currency trading of the central bank is relatively well understood. In intermediate regimes, or ‘dirty floats’, three different alternative behaviours of the central bank can be conjectured: symmetrically preventing changes of the exchange rate vs. preventing appreciation vs. preventing depreciation. In this paper, we describe a testing strategy for identifying the behaviour prevalent in a given period. In the empirical example, we find that it yields useful insights when applied in the subperiods identified by the methodology of Zeileis, Shah, and Patnaik (2007) for identifying dates of structural change in the exchange rate regime.