Foreign Exchange Intervention and the Australian Dollar: Has it Mattered?

By Hong Liang, Paul Cashin, Hali J Edison

May 1, 2003

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Hong Liang, Paul Cashin, and Hali J Edison. Foreign Exchange Intervention and the Australian Dollar: Has it Mattered?, (USA: International Monetary Fund, 2003) accessed November 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

Since the Australian dollar was floated in December 1983, the Australian central bank (Reserve Bank of Australia) has actively intervened in the foreign exchange market. Using daily exchange rate and official intervention data from January 1984 to December 2001, this paper examines what effects, if any, foreign exchange operations by the Reserve Bank of Australia (RBA) have had on the level and volatility of the Australian dollar exchange rate. First, using an event study we evaluate the effectiveness of intervention by examining its direct effect on the level of the exchange rate. We find that over the period 1997-2001, the RBA has had some success in its intervention operations, by moderating the depreciating tendency of the Australian dollar. Second, we investigate the effects of RBA intervention policies on exchange rate volatility over the floating rate period. Our results indicate that intervention operations tend to be associated with an increase in exchange rate volatility, which suggests that official intervention may have added to market uncertainty. Overall, the effects of RBA intervention are quite modest on both the level and the volatility of the Australian dollar exchange rate.

Subject: Currencies, Currency markets, Exchange rate adjustments, Exchange rates, Financial markets, Foreign exchange, Foreign exchange intervention, Money

Keywords: Capturing RBA, Central bank intervention, Currencies, Currency markets, Exchange rate, Exchange rate adjustments, Exchange rate data, Exchange rate movement, Exchange rate volatility, Exchange rates, First-differenced exchange rate series, Foreign exchange intervention, GARCH model, GARCH modeling, Intervention episode, RBA intervention, RBA's intervention action, WP

Publication Details

Pages:

30
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2003/099
Stock No:

WPIEA0992003
ISBN:

9781451852295
ISSN:

1018-5941

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