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On the Nonlinear Influence of Reserve Bank of Australia Interventions on Exchange Rates

  • STEFAN REITZ
  • JAN C. RÜLKE
  • MARK P. TAYLOR

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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File URL: http://hdl.handle.net/10.1111/j.1475-4932.2011.00723.x
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Article provided by The Economic Society of Australia in its journal The Economic Record.

Volume (Year): 87 (2011)
Issue (Month): 278 (09)
Pages: 465-479

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Handle: RePEc:bla:ecorec:v:87:y:2011:i:278:p:465-479
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