This file is part of IDEAS, which uses RePEc data


[ Papers | Articles | Software | Books | Chapters | Authors | Institutions | JEL Classification | NEP reports | Search | New papers by email | Author registration | Rankings | Volunteers | FAQ | Blog | Help! ]

Foreign Exchange Market Intervention in Two Small Open Economies: The Canadian and Australian Experience

Author info | Abstract | Publisher info | Download info | Related research | Statistics
Author Info
Jeff M. Rogers
Pierre Siklos (Wilfred Laurier University)

Additional information is available for the following registered author(s):

Abstract

This paper provides and empirical assessment of the effectiveness of foreign exchange intervention in two small open economies. Specifically, we examine the intervention practices of the Bank of Canada (BoC) and the Reserve Bank of Australia (RBA) for a sample of daily data spanning the period from 1989 to the end of 1997. Our analysis suggests that both central bank intervene in foreign exchange markets in response to excessive exchange rate volatility and uncertainty. Volatility is measured using the implied volatility of foreign currency futures options and uncertainty is proxied using the kurtosis of the implied risk-neutral probability density functions. The latter are derived using the implied volatility of options on foreign currency futures. We also examine whether the introduction of inflation targets affected the success of interventions. in the foreign exchange market. Unlike other studies in this area we also explicitly consider the role of commodity futures prices which turn out to be important in understanding the effectiveness of intervention. We find that central bank intervention in the foreign exchange amrket was largely unsuccessful in both countries though volatility and kurtosis were modestly affected.

Download Info
To download:

If you experience problems downloading a file, check if you have the proper application to view it first. Information about this may be contained in the File-Format links below. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.business.uts.edu.au/qfrc/research/research_papers/rp57.pdf
File Format: application/pdf
File Function:
Download Restriction: no

Publisher Info
Paper provided by Quantitative Finance Research Centre, University of Technology, Sydney in its series Research Paper Series with number 57.

Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Length:
Date of creation: 01 Jun 2001
Date of revision:
Handle: RePEc:uts:rpaper:57

Contact details of provider:
Postal: PO Box 123, Broadway, NSW 2007, Australia
Phone: +61 2 9514 7777
Fax: +61 2 9514 7711
Web page: http://www.business.uts.edu.au/qfrc/index.html
More information through EDIRC

For technical questions regarding this item, or to correct its listing, contact: (Duncan Ford).

Related research
Keywords:

Other versions of this item:

Find related papers by JEL classification:
F31 - International Economics - - International Finance - - - Foreign Exchange

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Kim, Suk-Joong & Kortian, Tro & Sheen, Jeffrey, 2000. "Central bank intervention and exchange rate volatility -- Australian evidence," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 10(3-4), pages 381-405, December. [Downloadable!] (restricted)
    Other versions:
  2. Robert A. Amano & Tony S. Wirjanto, . "A Further Analysis of Exchange Rate Targeting in Canada," Working Papers 94-2, Bank of Canada. [Downloadable!]
    Other versions:
  3. Dominguez, Kathryn M., 1998. "Central bank intervention and exchange rate volatility1," Journal of International Money and Finance, Elsevier, vol. 17(1), pages 161-190, February. [Downloadable!] (restricted)
  4. Neil, Beattie & Fillion, Jean-François, 1999. "An Intraday Analysis of the Effectiveness of Foreign Exchange Intervention," Working Papers 99-4, Bank of Canada. [Downloadable!]
  5. Kim, S.-J. & Sheen, J., 1999. "The Determinants of Foreign Exchange Intervention by Central Banks: Evidence from Australia," Papers 99-19, Sydney - Department of Economics.
    Other versions:
  6. Frank Campbell & Eleanor Lewis, 1998. "What Moves Yields in Australia?," RBA Research Discussion Papers rdp9808, Reserve Bank of Australia. [Downloadable!]
  7. Almekinders, Geert J & Eijffinger, Sylvester C W, 1994. "Daily Bundesbank and Federal Reserve Interventions: Are They a Reaction to Changes in the Level and Volatility of the DM/$-Rate?," Empirical Economics, Springer, vol. 19(1), pages 111-30.
  8. Catherine Bonser-Neal, 1996. "Does central bank intervention stabilize foreign exchange rates?," Economic Review, Federal Reserve Bank of Kansas City, issue Q I, pages 43-57. [Downloadable!]
  9. Almekinders, Geert J. & Eijffinger, Sylvester C. W., 1996. "A friction model of daily Bundesbank and Federal Reserve intervention," Journal of Banking & Finance, Elsevier, vol. 20(8), pages 1365-1380, September. [Downloadable!] (restricted)
  10. Hung, Juann H, 1997. "Intervention strategies and exchange rate volatility: a noise trading perspective," Journal of International Money and Finance, Elsevier, vol. 16(5), pages 779-793, September. [Downloadable!] (restricted)
  11. Michael P. Leahy & Charles P. Thomas, 1996. "The sovereignty option: the Quebec referendum and market views on the Canadian dollar," International Finance Discussion Papers 555, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  12. Weymark, Diana N, 1997. "Measuring the degree of exchange market intervention in a small open economy," Journal of International Money and Finance, Elsevier, vol. 16(1), pages 55-79, February. [Downloadable!] (restricted)
  13. Rasmus Fatum & Michael M. Hutchison, . "Is Sterilized Foreign Exchange Intervention Effective After All? An Event Study Approach," EPRU Working Paper Series 99-09, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics. [Downloadable!]
    Other versions:
  14. Siklos, Pierre L, 2000. "Is the MCI a Useful Signal of Monetary Policy Conditions? An Empirical Investigation," International Finance, Blackwell Publishing, vol. 3(3), pages 413-37, November. [Downloadable!] (restricted)
  15. Agathe Cote, . "Exchange Rate Volatility and Trade: A Survey," Working Papers 94-5, Bank of Canada. [Downloadable!]
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Balazs Egert & Lubos Komarek, 2005. "Foreign Exchange Interventions and Interest Rate Policy in the Czech Republic: Hand in Glove?," Working Papers 2005/07, Czech National Bank, Research Department. [Downloadable!]
    Other versions:
  2. Douglas James Hodgson, 2009. "A Test for the Presence of Central Bank Intervention in the Foreign Exchange Market With an Application to the Bank of Canada," CIRANO Working Papers 2009s-14, CIRANO. [Downloadable!]
  3. Christopher J. Neely, 2006. "Identifying the effects of U.S. intervention on the levels of exchange rates," Working Papers 2005-031, Federal Reserve Bank of St. Louis. [Downloadable!]
  4. Balázs Égert & Luboš Komárek, 2000. "Official Foreign Exchange Interventions in the Czech Republic: Did They Matter?," William Davidson Institute Working Papers Series wp760, William Davidson Institute at the University of Michigan Stephen M. Ross Business School. [Downloadable!]
  5. Rasmus Fatum, 2005. "Daily Effects of Foreign Exchange Intervention: Evidence from Official Bank of Canada Data," EPRU Working Paper Series 05-07, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics. [Downloadable!]
  6. Bryan W. Brown; Douglas J. Hodgson, 2004. "Models of foreign exchange intervention: Estimation and testing," Econometric Society 2004 Australasian Meetings 96, Econometric Society. [Downloadable!]
  7. Rasmus Fatum & Michael R. King, 2005. "Rules versus Discretion in Foreign Exchange Intervention: Evidence from Official Bank of Canada High-Frequency Data," EPRU Working Paper Series 05-06, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics. [Downloadable!]
    Other versions:
  8. Owen F. Humpage, 2003. "Government intervention in the foreign exchange market," Working Paper 0315, Federal Reserve Bank of Cleveland. [Downloadable!]
  9. Christopher J. Neely, 2005. "An analysis of recent studies of the effect of foreign exchange intervention," Review, Federal Reserve Bank of St. Louis, issue Nov, pages 685-718. [Downloadable!]
    Other versions:
  10. Jonathan Kearns & Roberto Rigobon, 2002. "Identifying the Efficacy of Central Bank Interventions: The Australian Case," NBER Working Papers 9062, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  11. Balázs Égert & Maroje Lang, 2005. "Foreign Exchange Interventions in Croatia and Turkey: Should We Give a Damn?," William Davidson Institute Working Papers Series wp755, William Davidson Institute at the University of Michigan Stephen M. Ross Business School. [Downloadable!]
  12. Chris Becker & Michael Sinclair, 2004. "Profitability of Reserve Bank Foreign Exchange Operations: Twenty Years After The Float," RBA Research Discussion Papers rdp2004-06, Reserve Bank of Australia. [Downloadable!]
  13. Siklos, Pierre & Bohl , Martin, 2006. "Policy words and policy deeds: the ECB and the euro," Research Discussion Papers 2/2006, Bank of Finland. [Downloadable!]
    Other versions:
  14. Jonathan Kearns & Roberto Rigobon, 2003. "Identifying the Efficacy of Central Bank Interventions: Evidence from Australia," RBA Research Discussion Papers rdp2003-04, Reserve Bank of Australia. [Downloadable!]
Statistics
Access and download statistics

Did you know? RePEc stands for Research Papers in Economics.

This page was last updated on 2009-11-9.

This information is provided to you by IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics.