Foreign Exchange Intervention and the Australian Dollar: Has it Mattered?

 
Author/Editor: Edison, Hali J. ; Cashin, Paul ; Liang, Hong
 
Publication Date: May 01, 2003
 
Electronic Access: Free Full text (PDF file size is 911KB).
Use the free Adobe Acrobat Reader to view this PDF file

 
Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate
 
Summary: 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.
 
Series: Working Paper No. 03/99
Subject(s): Foreign exchange | Australia | Intervention | Australian dollar | Exchange rate stability

Author's Keyword(s): Foreign exchange intervention | exchange rate volatility | GARCH modeling
 
English
Publication Date: May 01, 2003
ISBN/ISSN: 1934-7073 Format: Paper
Stock No: WPIEA0992003 Pages: 29
Price:
US$15.00 (Academic Rate:
US$15.00 )
 
 
Please address any questions about this title to publications@imf.org