On the Nonlinear Influence of Reserve Bank of Australia Interventions on Exchange Rates
48 Pages Posted: 8 Jun 2016
Date Written: 2010
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: Suggested Citation