“The Malawi kwacha was floated in February 1994. Since then, the Reserve Bank of Malawi (RBM) has periodically intervened in the foreign exchange market. This report analyses the effectiveness of foreign exchange market interventions by RBM. A generalized autoregressive conditional heteroscedastic (GARCH; 1,1) model was used to simultaneously estimate the effect of intervention on the mean and volatility of
the kwacha. We also ran an equilibrium exchange rate model and use the equilibrium
exchange rate criterion to compare results with those from the GARCH model. Using monthly exchange rates and official intervention data from January 1995 to June
2008, results from the GARCH model indicated that net sales of United States dollars by
RBM depreciate, rather than appreciate, the kwacha.”
