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

This article 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. Second, a STR‐GARCH m...

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Bibliographic Details
Published in:The Economic record 2011-09, Vol.87 (278), p.465-479
Main Authors: REITZ, STEFAN, RÜLKE, JAN C., TAYLOR, MARK P.
Format: Article
Language:English
Subjects:
Australia
C10
Central banks
Econometric models
Exchange rate determination
Exchange rate policy
Exchange rates
F31
F41
Foreign exchange
Foreign exchange rates
GARCH models
Intervention
Monetary economics
Monetary policy
Stochastic models
Time series
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Summary:This article 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. Second, a STR‐GARCH model suggests that RBA interventions account for this result by strengthening foreign exchange traders’ confidence in fundamental analysis. This is in line with the so‐called coordination channel of intervention effectiveness.
ISSN:0013-0249
1475-4932
DOI:10.1111/j.1475-4932.2011.00723.x