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Author: Ms.Hali J. Edison Publisher: International Monetary Fund ISBN: 1451852290 Category : Business & Economics Languages : en Pages : 31
Book Description
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.
Author: Ms.Hali J. Edison Publisher: International Monetary Fund ISBN: 1451852290 Category : Business & Economics Languages : en Pages : 31
Book Description
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.
Author: Felix Hüfner Publisher: Springer Science & Business Media ISBN: 3790826723 Category : Business & Economics Languages : en Pages : 180
Book Description
Foreign exchange intervention is frequently being used by central banks in countries which have a floating exchange rate. Most theoretical monetary policy models, however, do not take this phenomenon into account. This book contributes to close this gap between theory and practice by interpreting foreign exchange intervention as an additional monetary policy instrument for inflation targeting central banks. In-depth empirical analyses of the foreign exchange operations and interest rate policy of five inflation targeting countries (Australia, Canada, New Zealand, Sweden and the United Kingdom) demonstrate how foreign exchange intervention is used in practice.
Author: Suk-Joong Kim Publisher: ISBN: Category : Languages : en Pages : 0
Book Description
Intervention by the Reserve Bank of Australia on foreign exchange markets from 1983 to 1997 is conjectured to have been determined by exchange rate trend correction, exchange rate volatility smoothing, the U.S. and Australian overnight interest rate differentials, profitability and foreign currency reserve inventory considerations. Using Probit and friction models, we show that these factors were significant influences on intervention behaviour. Consistent with the constraint of intervening only when a clear trend is apparent, we find that above average measures of deviations from trend and of volatility muted the response of the Reserve Bank.
Author: Mark P. Taylor Publisher: ISBN: Category : Languages : en Pages : 0
Book Description
The coordination channel of foreign exchange intervention has been proposed as a means by which foreign exchange market intervention may be effective when misalignments of the exchange rate are generated by non-fundamental influences and the return to equilibrium is hampered by a coordination failure among fundamentals-based traders. Under these circumstances central bank intervention may act as a coordinating signal, encouraging stabilizing speculators to re-enter the market. This paper examines the effectiveness of Reserve Bank of Australia (RBA) interventions via the coordination channel. Using daily exchange rates from January 1984 to March 2005, we provide evidence that Australian intervention policy was effective via the coordination channel, thereby providing a rationale for the RBA's ongoing intervention policy.
Author: Jonathan Kearns Publisher: ISBN: Category : Banks and banking, Central Languages : en Pages : 48
Book Description
The endogeneity of exchange rates and intervention has long plagued studies of the effectiveness of central banks actions in foreign exchange markets. Researchers have either excluded contemporaneous intervention, so that their explanators are predetermined, or obtained a small, and typically incorrectly signed, coefficient on contemporaneous intervention. Failing to account for the endogeneity, when central banks lean against the wind and trade strategically, will likely result in a large downward bias to the coefficient on contemporaneous intervention -- explaining the negative coefficient frequently obtained. We use an alternative identification assumption, a change in Reserve Bank of Australia intervention policy, that allows us to estimate, using simulated GMM, a model that includes the contemporaneous impact of intervention. There are three main results. Our point estimates suggest that central bank intervention has a economically significant contemporaneous effect. A $US100m purchase of the domestic currency will appreciate the exchange rate by 1.35 to 1.81 per cent. This estimate is remarkably similar to the calibration conducted by Dominguez and Frankel (1993), who themselves noted their estimate was larger than previous empirical findings. Secondly, the vast majority of the effect of an intervention on the exchange rate is found to occur during the day in which it is conducted, with only a smaller impact on subsequent days. Finally, we confirm findings that Australian central bank intervention policy can be characterized by leaning aginst the wind.
Author: Jeff M. Rogers Publisher: ISBN: Category : Languages : en Pages :
Book Description
We examine intervention by the Bank of Canada and the Reserve Bank of Australia for daily data from 1989 to 1998. Both central banks used to intervene in response to exchange rate volatility and uncertainty that appeared excessive. Volatility is measured via the implied volatility of foreign currency futures options. Uncertainty is proxied by the kurtosis of the implied risk-neutral probability density functions. We also examine the impact from the introduction of inflation targeting. In a departure from other studies of this kind, we explicitly consider the role of commodity futures prices. After all, both countries have been seen by many traders as being commodity currencies. Moreover, we also take into account the impact of a wide range of news events on the intervention practices of both central banks. These additional variables turn out to help explain the effectiveness of intervention. Central bank intervention was largely unsuccessful in both countries though volatility and kurtosis were modestly affected. We also find some notable differences in the impact of inflation targets in both countries on the effectiveness of foreign exchange intervention.
Author: Romain Lafarguette Publisher: International Monetary Fund ISBN: 1513569406 Category : Business & Economics Languages : en Pages : 33
Book Description
This paper presents a rule for foreign exchange interventions (FXI), designed to preserve financial stability in floating exchange rate arrangements. The FXI rule addresses a market failure: the absence of hedging solution for tail exchange rate risk in the market (i.e. high volatility). Market impairment or overshoot of exchange rate between two equilibria could generate high volatility and threaten financial stability due to unhedged exposure to exchange rate risk in the economy. The rule uses the concept of Value at Risk (VaR) to define FXI triggers. While it provides to the market a hedge against tail risk, the rule allows the exchange rate to smoothly adjust to new equilibria. In addition, the rule is budget neutral over the medium term, encourages a prudent risk management in the market, and is more resilient to speculative attacks than other rules, such as fixed-volatility rules. The empirical methodology is backtested on Banco Mexico’s FXIs data between 2008 and 2016.
Author: Ms.Hali J. Edison
Author: Ms.Hali J. Edison
Author: Suk-Joong Kim
Author: Suk-Joong Kim
Author: Felix Hüfner
Author: Suk-Joong Kim
Author: Mark P. Taylor
Author: Jonathan Kearns
Author: Stephen Grenville
Author: Jeff M. Rogers
Author: Romain Lafarguette