Central bank intervention and exchange rate volatility - Australian evidence

Suk Joong Kim*, Tro Kortian, Jeffrey Sheen

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

52 Citations (Scopus)

Abstract

This paper examines the key characteristics of foreign exchange intervention by the Reserve Bank of Australia in the period 1983-1997, which can be broken into five distinct phases. We investigate the changing effectiveness of daily intervention on the $US/$A exchange rate by decomposing the exchange rate response to the intervention into various separate components. We find contemporaneous positive correlation between the direction of intervention and the conditional mean and variance of exchange rate returns. We show that sustained and large interventions have a stabilising influence in the foreign exchange market in terms of direction and volatility. Without these interventions, the market would have moved further and exhibited more volatility.

Original languageEnglish
Pages (from-to)381-405
Number of pages25
JournalJournal of International Financial Markets, Institutions and Money
Volume10
Issue number3-4
Publication statusPublished - Dec 2000
Externally publishedYes

Keywords

  • EGARCH modelling
  • Exchange rate volatility
  • Foreign exchange intervention

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