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

30 Pages Posted: 31 Jul 2003

See all articles by Hali J. Edison

Hali J. Edison

International Monetary Fund (IMF) - Research Department

Paul Anthony Cashin

International Monetary Fund (IMF)

Hong Liang

International Monetary Fund (IMF)

Date Written: May 28, 2003

Abstract

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.

Keywords: Foreign exchange intervention, exchange rate volatility, GARCH modeling

JEL Classification: F31, G14, G15

Suggested Citation

Edison, Hali J. and Cashin, Paul Anthony and Liang, Hong, Foreign Exchange Intervention and the Australian Dollar: Has it Mattered? (May 28, 2003). IMF Working Paper No. 03/99, Available at SSRN: https://ssrn.com/abstract=424561 or http://dx.doi.org/10.2139/ssrn.424561

Hali J. Edison (Contact Author)

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States
202-623-6946 (Phone)
202-589-6946 (Fax)

Paul Anthony Cashin

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

Hong Liang

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

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