Foreign exchange intervention and the Australian dollar: has it mattered?
Since the Australian dollar was floated in December 1983, the Australian central bank (Reserve Bank of Australia) has actively intervened in the foreign exchange market. Using daily exchange rate and official intervention data from January 1984 to December 2001, this paper examines what effects, if any, foreign exchange operations by the Reserve Bank of Australia (RBA) have had on the level and volatility of the Australian dollar exchange rate. First, using an event study we evaluate the effectiveness of intervention by examining its direct effect on the level of the exchange rate. We find that over the period 1997-2001, the RBA has had some success in its intervention operations, by moderating the depreciating tendency of the Australian dollar. Second, we investigate the effects of RBA intervention policies on exchange rate volatility over the floating rate period. Our results indicate that intervention operations tend to be associated with an increase in exchange rate volatility, which suggests that official intervention may have added to market uncertainty. Overall, the effects of RBA intervention are quite modest on both the level and the volatility of the Australian dollar exchange rate. Copyright © 2006 John Wiley & Sons, Ltd.
Volume (Year): 11 (2006)
Issue (Month): 2 ()
|Contact details of provider:|| Web page: http://www.interscience.wiley.com/jpages/1076-9307/|
|Order Information:||Web: http://jws-edcv.wiley.com/jcatalog/JournalsCatalogOrder/JournalOrder?PRINT_ISSN=1076-9307|
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.:
- Hong Liang & John T. Cuddington, 2000. "Will the Emergence of the Euro Affect World Commodity Prices?," IMF Working Papers 00/208, International Monetary Fund.
- Dominguez, Kathryn M & Frankel, Jeffrey A, 1993. "Does Foreign-Exchange Intervention Matter? The Portfolio Effect," American Economic Review, American Economic Association, vol. 83(5), pages 1356-69, December.
- 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.
- Mark P. Taylor & Lucio Sarno, 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.
- Robert Andrew & John Broadbent, 1994. "Reserve Bank Operations in the Foreign Exchange Market: Effectiveness and Profitability," RBA Research Discussion Papers rdp9406, Reserve Bank of Australia.
- 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.
- 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.
- 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.
- Cashin, Paul & Cespedes, Luis F. & Sahay, Ratna, 2004.
"Commodity currencies and the real exchange rate,"
Journal of Development Economics,
Elsevier, vol. 75(1), pages 239-268, October.
- Ratna Sahay & Luis Felipe CÃ©spedes & Paul Cashin, 2002. "Keynes, Cocoa, and Copper: In Search of Commodity Currencies," IMF Working Papers 02/223, International Monetary Fund.
- 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.
- Rasmus Fatum & Michael M. Hutchison, 2003. "Is sterilised foreign exchange intervention effective after all? an event study approach," Economic Journal, Royal Economic Society, vol. 113(487), pages 390-411, 04.
- Baillie, Richard T. & P. Osterberg, William, 1997. "Central bank intervention and risk in the forward market," Journal of International Economics, Elsevier, vol. 43(3-4), pages 483-497, November.
- Fatum, Rasmus, 2000. "On the effectiveness of sterilized foreign exchange intervention," Working Paper Series 0010, European Central Bank.
- Francis X. Diebold & Marc Nerlove, 1986.
"The dynamics of exchange rate volatility: a multivariate latent factor ARCH model,"
Special Studies Papers
205, Board of Governors of the Federal Reserve System (U.S.).
- Diebold, Francis X & Nerlove, Marc, 1989. "The Dynamics of Exchange Rate Volatility: A Multivariate Latent Factor Arch Model," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 4(1), pages 1-21, Jan.-Mar..
- Y.Chen & K. Rogoff, 2003.
"Commodity Currencies and Empirical Exchange Rate Puzzles,"
DNB Staff Reports (discontinued)
76, Netherlands Central Bank.
- Kenneth Rogoff & Yu-chin Chen, 2002. "Commodity Currencies and Empirical Exchange Rate Puzzles," IMF Working Papers 02/27, International Monetary Fund.
- Takatoshi Ito, 2003.
"Is foreign exchange intervention effective? The Japanese experiences in the 1990s,"
in: Monetary History, Exchange Rates and Financial Markets, chapter 5
- Takatoshi Ito, 2002. "Is Foreign Exchange Intervention Effective?: The Japanese Experiences in the 1990s," NBER Working Papers 8914, National Bureau of Economic Research, Inc.
- Takatoshi Ito, 2002. "Is Foreign Exchange Intervention Effective?: The Japanese experiences in the 1990s," Discussion Paper Series a428, Institute of Economic Research, Hitotsubashi University.
- Bonser-Neal, Catherine & Tanner, Glenn, 1996. "Central bank intervention and the volatility of foreign exchange rates: evidence from the options market," Journal of International Money and Finance, Elsevier, vol. 15(6), pages 853-878, December.
- Kim, Suk-Joong & Sheen, Jeffrey, 2002. "The determinants of foreign exchange intervention by central banks: evidence from Australia," Journal of International Money and Finance, Elsevier, vol. 21(5), pages 619-649, October.
- Christopher J. Neely, 2001.
"The practice of central bank intervention: looking under the hood,"
Federal Reserve Bank of St. Louis, issue May, pages 1-10.
- Christopher J. Neely, 2000. "The practice of central bank intervention: looking under the hood," Working Papers 2000-028, Federal Reserve Bank of St. Louis.
- 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.
- 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.
When requesting a correction, please mention this item's handle: RePEc:ijf:ijfiec:v:11:y:2006:i:2:p:155-171. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing)or (Christopher F. Baum)
If references are entirely missing, you can add them using this form.