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An empirical examination of the relationship between central bank intervention and exchange rate volatility: some Australian evidence

Mckenzie, M 2004, 'An empirical examination of the relationship between central bank intervention and exchange rate volatility: some Australian evidence', Australian Economic Papers, vol. 43, no. 1, pp. 59-74.

Document type: Journal Article
Collection: Journal Articles

Title An empirical examination of the relationship between central bank intervention and exchange rate volatility: some Australian evidence
Author(s) Mckenzie, M
Year 2004
Journal name Australian Economic Papers
Volume number 43
Issue number 1
Start page 59
End page 74
Total pages 15
Publisher Blackwell Publishing Asia
Abstract Arguably, market stability is one of the primary reasons behind government intervention in the foreign exchange market. Whether or not the authorities achieve this goal is an empirical matter and testing of this issue is made difficult by the fact that government intervention and exchange rate volatility may be jointly determined. In this paper, the extent to which volatility drives intervention is considered using PROBIT analysis. The results suggest that while support for the hypothesis exists, volatility on its own does not to provide enough information to allow us to accurately forecast government intervention. A modified GARCH model is then tested which incorporates the impact of government intervention in the mean and conditional variance equation. The evidence presented suggest that the dynamics of market are different on the days where the central bank is active in the market.
Subject Financial Economics
Copyright notice © Blackwell Publishing Ltd/University of Adelaide and Flinders University of South Australia 2004.
ISSN 0004-900x
 
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