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Models of foreign exchange intervention: Estimation and testing

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  • Bryan W. Brown; Douglas J. Hodgson

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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Bibliographic Info

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

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  1. Jeff M. Rogers & Pierre Siklos, 2001. "Foreign Exchange Market Intervention in Two Small Open Economies: The Canadian and Australian Experience," Research Paper Series 57, Quantitative Finance Research Centre, University of Technology, Sydney.
  2. 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.
  3. Hansen, B.E., 1991. "Inference when a Nuisance Parameter is Not Identified Under the Null Hypothesis," RCER Working Papers 296, University of Rochester - Center for Economic Research (RCER).
  4. 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.
  5. Sarno, Lucio & Taylor, Mark P, 2001. "Official Intervention in the Foreign Exchange Market: Is It Effective, and, If So, How Does It Work?," CEPR Discussion Papers 2690, C.E.P.R. Discussion Papers.
  6. Newey, Whitney K, 1990. "Semiparametric Efficiency Bounds," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 5(2), pages 99-135, April-Jun.
  7. Eijffinger, S.C.W., 1991. "Empirical evidence on foreign exchange market intervention: Where do we stand?," Open Access publications from Tilburg University urn:nbn:nl:ui:12-152907, Tilburg University.
  8. Bryan W. Brown & Douglas J. Hodgson, 2007. "Semiparametric efficiency bounds in dynamic non-linear systems under elliptical symmetry," Econometrics Journal, Royal Economic Society, vol. 10(1), pages 35-48, 03.
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