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On the nonlinear influence of Reserve Bank of Australia interventions on exchange rates

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  • Reitz, Stefan
  • Ruelke, Jan C.
  • Taylor, Mark P.

Abstract

This paper applies nonlinear econometric models to empirically investigate the effectiveness of the Reserve Bank of Australia (RBA) exchange rate policy. First, results from a STARTZ model are provided revealing nonlinear mean reversion of the Australian dollar exchange rate in the sense that mean reversion increases with the degree of exchange rate misalignment. Second, a STR-GARCH model suggests that RBA interventions account for this result by strengthening foreign exchange traders' confidence in fundamental analysis. This in line with the so-called coordination channel of intervention effectiveness. --

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Bibliographic Info

Paper provided by Deutsche Bundesbank, Research Centre in its series Discussion Paper Series 1: Economic Studies with number 2010,08.

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Date of creation: 2010
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Handle: RePEc:zbw:bubdp1:201008

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Keywords: Foreign exchange intervention; market microstructure; smooth transition; nonlinear mean reversion;

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Cited by:
  1. Lof, Matthijs, 2012. "Heterogeneity in stock prices: A STAR model with multivariate transition function," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 36(12), pages 1845-1854.

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