@article {1656136,
	title = {Leaning-against-the-wind intervention and the {\textquotedblleft}carry-trade{\textquotedblright} view of the cost of reserves},
	year = {2022},
	abstract = {
	For a sample of emerging economies, we estimate the quasi-fiscal costs of sterilized foreign exchange interventions as the P\&amp;L of an inverse carry trade. We show that these costs can be substantial when intervention has a neo-mercantilist motive (preserving an undervalued currency) or a stabilization motive (appreciating the exchange rate as a nominal anchor) but are rather small when interventions follow a countercyclical, leaning-against-the-wind (LAW) pattern to contain exchange rate volatility. We document that under LAW, central banks outperform a constant size carry trade, as they additionally benefit from buying against cyclical deviations, and that the cost of reserves under the carry-trade view is generally lower than the one obtained from the credit-risk view (which equals the marginal cost to the country{\textasciiacute}s sovereign spread).

},
	author = {Eduardo Levy-Yeyati and Juan Francisco G{\'o}mez}
}
