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Models of foreign exchange intervention: Estimation and testing

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Author Info
Bryan W. Brown; Douglas J. Hodgson

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Abstract

We propose a general non-linear simultaneous equations framework for the econometric analysis of models of intervention in foreign exchange markets by central banks in response to deviations of exchange rates from possibly time-varying target levels. We consider efficient estimation of possibly non-linear response functions and tests of functional form, the latter making use of the econometric literature on testing in the presence of nuisance parameters unidentified under a null hypothesis. The methodology is applied in an analysis of recent activity of the Bank of Canada with respect to the Canada-U.S. exchange rat

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Paper provided by Econometric Society in its series Econometric Society 2004 Australasian Meetings with number 96.

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Date of creation: 11 Aug 2004
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Handle: RePEc:ecm:ausm04:96

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Related research
Keywords: Central bank intervention; nonlinear simultaneous equations; time series; semiparametric methods;

Find related papers by JEL classification:
F31 - International Economics - - International Finance - - - Foreign Exchange
C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions

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  1. Longworth, David, 1980. "Canadian Intervention in the Foreign Exchange Market: A Note," The Review of Economics and Statistics, MIT Press, vol. 62(2), pages 284-87, May. [Downloadable!] (restricted)
  2. Hansen, Bruce E, 1996. "Inference When a Nuisance Parameter Is Not Identified under the Null Hypothesis," Econometrica, Econometric Society, vol. 64(2), pages 413-30, March. [Downloadable!] (restricted)
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  3. Newey, Whitney K, 1990. "Semiparametric Efficiency Bounds," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 5(2), pages 99-135, April-Jun. [Downloadable!] (restricted)
  4. Rogers, J. M. & Siklos, P. L., 2003. "Foreign exchange market intervention in two small open economies: the Canadian and Australian experience," Journal of International Money and Finance, Elsevier, vol. 22(3), pages 393-416, June. [Downloadable!] (restricted)
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  5. Lucio Sarno & Mark P. Taylor, 2001. "Official Intervention in the Foreign Exchange Market: Is It Effective and, If So, How Does It Work?," Journal of Economic Literature, American Economic Association, vol. 39(3), pages 839-868, September. [Downloadable!] (restricted)
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  6. Andrews, Donald W K & Ploberger, Werner, 1994. "Optimal Tests When a Nuisance Parameter Is Present Only under the Alternative," Econometrica, Econometric Society, vol. 62(6), pages 1383-1414, November. [Downloadable!] (restricted)
    Other versions:
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