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

48 Pages Posted: 8 Jun 2016

See all articles by Jan C. Ruelke

Jan C. Ruelke

WHU - Otto Beisheim School of Management

Mark P. Taylor

Washington University in St. Louis - John M. Olin Business School; Centre for Economic Policy Research (CEPR)

Date Written: 2010

Abstract

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.

Keywords: Foreign exchange intervention, market microstructure, smooth transition, nonlinear mean reversion

JEL Classification: C10, F31, F41

Suggested Citation

Ruelke, Jan C. and Taylor, Mark Peter, On the Nonlinear Influence of Reserve Bank of Australia Interventions on Exchange Rates (2010). Bundesbank Series 1 Discussion Paper No. 2010,08. Available at SSRN: https://ssrn.com/abstract=2785371

Jan C. Ruelke

WHU - Otto Beisheim School of Management ( email )

Burgplatz 2
D-56179 Vallendar, 56179
Germany
0049-261-6509286 (Phone)

Mark Peter Taylor

Washington University in St. Louis - John M. Olin Business School ( email )

One Brookings Drive
Campus Box 1156
St. Louis, MO 63130-4899
United States

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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