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Intervention operations in the foreign exchange market are used by the Banco Central de Reserva del Peru to manage both the level and volatility of their exchange rates. The Banco Central de Reserva del Peru provides information to the market about the specific hours of the day interventions would take place and the total amount of intervention. It consistently buys and sells on the foreign exchange market to avoid large appreciations and depreciations of the Peruvian nuevo sol against the U.S. dollar (Sol/USD), respectively. The estimates in this paper indicate that past information on interventions has moved the sol in the intended direction but only during the time the Banco Central de Reserva del Peru has announced it would be active in the foreign exchange market. The authors also find that the expectation of future interventions by the Banco Central de Reserva del Peru decreases the volatility of the sol when it intervenes to avoid an appreciation of the sol; however, the opposite occurs when the intervention takes place to defend the sol from depreciation. Indeed, the sol has been less volatile during periods when the Banco Central de Reserva del Peru has intervened than otherwise.

Currencies and Exchange Rates --- Debt Markets --- Economic Change --- Economic Stabilization --- Emerging Markets --- Exchange Control --- Financial Services --- Foreign Exchange --- Macroeconomic Management --- Market Size --- Public Sector Development

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May 2000 - Two theories are combined to explain why free trade areas (FTAs) have proliferated more than customs unions (CUs) have, and why FTAs are found more in North-South agreements and CUs in South-South agreements. Schiff combines two theories - one about how multilateral trade liberalization affects regional integration, the other about how it affects political disintegration - to explain why the ratio of free trade areas to customs unions has increased over time, and why it is larger in North-South than in South-South agreements. Ethier (1998, 1999) argues that multilateral trade liberalization led to the recent wave of regional integration arrangements. Alesina and others (1997), in discussing the number and size of countries, argue that multilateral trade liberalization leads to political disintegration, with an increase in the number of countries. Combining the two arguments, Schiff hypothesizes that as multilateral trade liberalization proceeds and the number of regional integration arrangements increases, the ratio of free trade areas to customs unions also increases. The same arguments are also used to show why that ratio is larger in North-South than in South-South agreements. The data, which show that ratio increasing in the 1990s and larger for North-South agreements, are consistent with the hypotheses. Finally, a number of voluntary and involuntary customs unions are examined where weaker members lose and conflict does or does not take place, and where free trade agreements are superior. This paper - a product of Trade, Development Research Group - is part of a larger effort in the group to study regional integration. The author may be contacted at mschiff@worldbank.org.

Andean Pact --- Bloc Welfare --- Customs Union Formation --- Customs Unions --- Economic Dominance --- Economic Theory and Research --- Emerging Markets --- External Tariff --- Free Trade --- Free Trade Agreements --- Free Trade Area --- International Economics & Trade --- Law and Development --- Macroeconomics and Economic Growth --- Market Size --- Multilateral Liberalization --- Multilateral System --- Multilateral Trade Liberalization --- Open Regionalism --- Preferential Market Access --- Private Sector Development --- Public Sector Development --- Regional Integration --- Regionalism --- Rules of Origin --- Tariffs --- Trade --- Trade and Regional Integration --- Trade Diversion --- Trade Law --- Trade Policy