In the aftermath of the taper tantrum, the Central Bank of Brazil announced a major program
of sterilized foreign exchange intervention. We use a synthetic control approach to estimate
its impact on the level and volatility of the exchange rate. Our counterfactual results, based
on the experience of other emerging markets, indicate the program led to an appreciation of
the Brazilian real in excess of 10%. Some of our estimates also point to a decline in the
option-implied volatility. A second announcement extending the program had more muted …

… ▶ We use a large, “pre-announced”, FX intervention program deployed by the Brazilian
Central Bank in the wake of the Taper Tantrum. … ▶ To find an instrument for daily FX
sterilized interventions is hard; ▶ The Brazilian program was different because all the news
about future FX interventions was concentrated at the announcement; …