The Monetary Channel of Foreign Exchange Interventions: A Mixed Frequency Data Sampling (MIDAS) Approach

This study aims to analyze the effectiveness of foreign exchange interventions by the Central Bank of Iran on the Iranian foreign exchange market from ۲۰۰۲ to ۲۰۱۷. For this purpose, we use a mixed frequency data sampling regression model (MIDAS). This enables us to use the available data at different frequencies and has a better forecast of the exchange rate. Examining the Iranian Rial/U.S. dollar exchange rate, we find that the Iranian Central Bank intervention effectively reduces the exchange rate level deviations. In this regard, a ۱ percent increase in foreign exchange interventions in each period decreased the exchange rate level by ۰.۰۹۴ percent. Also, we find that the GDP has a negative effect on the exchange rate and the government deficit and growth money supply have a positive effect on the exchange rate level.  In addition, using the statistics of ۲۰۱۸, we examine the predictive power of the model. The result shows that the predicted values and the actual values are close in terms of direction. However, regarding the value, there is a difference.JEL Classification: E۵۸, F۳۱, B۴۱.

Keywords:

Foreign Exchange Intervention , Mixed Frequency Data Sampling , Exchange Rate Level