Zone-quadratic preference, asymmetry and international reserve accretion in India: An empirical investigation

► Reserve Bank of India (RBI) actively intervenes in the foreign exchange market. ► Intervention is better described by a nonlinear policy reaction function with a target range. ► The tolerance band of RBI for the movement in the exchange rate is asymmetric. ► Response to changes in exchange rate is stronger outside the target range than within range. ► Such a policy response accounts for the large build-up in foreign exchange reserves in India.