IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

The Effectiveness of Foreign Exchange Intervention in Australia: A Factor Model Approach with GARCH Specifications

  • Shakila Aruman
Registered author(s):

    This paper analyses the effectiveness of foreign exchange intervention by the Reserve Bank of Australia (RBA). Initially, a latent factor model is used to decompose the volatility of exchange rates into three unobserved factors - world, numeraire and idiosyncratic. Subsequently, the impact of foreign exchange rate intervention is examined by further decomposing the numeraire (Australian) factor into an intervention component and an unobserved component. An indirect estimation approach is employed to facilitate the imposition of GARCH structures on some of the unobserved factors. The empirical results suggest that less than three percent of observed exchange rate volatility is explained by RBA intervention.

    If you experience problems downloading a file, check if you have the proper application to view it first. 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://external-apps.qut.edu.au/business/documents/discussionPapers/2003/DP%20No%20135.pdf
    Download Restriction: no

    Paper provided by School of Economics and Finance, Queensland University of Technology in its series School of Economics and Finance Discussion Papers and Working Papers Series with number 135.

    as
    in new window

    Length:
    Date of creation: 20 Jan 2003
    Date of revision:
    Handle: RePEc:qut:dpaper:135
    Contact details of provider: Postal: GPO Box 2434, BRISBANE QLD 4001
    Web page: http://www.bus.qut.edu.au/faculty/economics/
    Email:


    More information through EDIRC

    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.:

    as in new window
    1. Aigner, Dennis J. & Hsiao, Cheng & Kapteyn, Arie & Wansbeek, Tom, 1984. "Latent variable models in econometrics," Handbook of Econometrics, in: Z. Griliches† & M. D. Intriligator (ed.), Handbook of Econometrics, edition 1, volume 2, chapter 23, pages 1321-1393 Elsevier.
    2. Gourieroux, C. & Monfort, A. & Renault, E., 1992. "Indirect Inference," Papers 92.279, Toulouse - GREMAQ.
    3. Ronald Mahieu & Peter Schotman, 1994. "Neglected Common Factors in Exchange Rate Volatility," CEPR Financial Markets Paper 0041, European Science Foundation Network in Financial Markets, c/o C.E.P.R, 77 Bastwick Street, London EC1V 3PZ..
    4. repec:ltr:wpaper:1999.12 is not listed on IDEAS
    5. Dungey, M. H., 1999. "Decomposing exchange rate volatility around the Pacific Rim," Journal of Asian Economics, Elsevier, vol. 10(4), pages 525-535.
    6. Baillie, Richard T. & Osterberg, William P., 1997. "Why do central banks intervene?," Journal of International Money and Finance, Elsevier, vol. 16(6), pages 909-919, December.
    7. 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.
    8. Aguilar, Javiera & Nydahl, Stefan, 2000. "Central bank intervention and exchange rates: the case of Sweden," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 10(3-4), pages 303-322, December.
    9. G. C. Lim & I. R. Harper, 1991. "Official Intervention in the Foreign Exchange Market," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 24(4), pages 67-71.
    10. Mardi Dungey & Vance L Martin & Adrian R Pagan, 2000. "A multivariate latent factor decomposition of international bond yield spreads," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 15(6), pages 697-715.
    11. Reuven Glick & Michael Hutchison, 1993. "Monetary policy, intervention, and exchange rates in Japan," Pacific Basin Working Paper Series 93-07, Federal Reserve Bank of San Francisco.
    12. Bollerslev, Tim & Chou, Ray Y. & Kroner, Kenneth F., 1992. "ARCH modeling in finance : A review of the theory and empirical evidence," Journal of Econometrics, Elsevier, vol. 52(1-2), pages 5-59.
    13. 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.
    14. Karunaratne, Neil Dias, 1995. "The Effectiveness of Exchange Rate Intervention in Post-Float Australia," Economia Internazionale / International Economics, Camera di Commercio di Genova, vol. 48(4), pages 515-536.
    15. 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.).
    16. 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.
    17. M. Ayhan Kose & Christopher Otrok & Charles H. Whiteman, 2003. "International Business Cycles: World, Region, and Country-Specific Factors," American Economic Review, American Economic Association, vol. 93(4), pages 1216-1239, September.
    Full references (including those not matched with items on IDEAS)

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:qut:dpaper:135. 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: (Angela Fletcher)

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.