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The Effectiveness of Foreign Exchange Intervention in Australia: A Factor Model Approach with GARCH Specifications. Discussion Paper No 135

Aruman, Shakila (2003) The Effectiveness of Foreign Exchange Intervention in Australia: A Factor Model Approach with GARCH Specifications. Discussion Paper No 135. [Working Paper]

Abstract

This paper analyses the effectiveness of foreign exchange intervention by the Reserve Bank of Australia (RBA). Initially, a latent factor model is used to decompose the volatility of exchange rates into three unobserved factors - world, numeraire and idiosyncratic. Subsequently, the impact of foreign exchange rate intervention is examined by further decomposing the numeraire (Australian) factor into an intervention component and an unobserved component. An indirect estimation approach is employed to facilitate the imposition of GARCH structures on some of the unobserved factors. The empirical results suggest that less than three percent of observed exchange rate volatility is explained by RBA intervention.

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343 since deposited on 26 Aug 2004
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ID Code: 391
Item Type: Working Paper
Keywords: exchange rate, latent factor model, indirect estimation, exchange rate, latent factor model, indirect estimation
Subjects: Australian and New Zealand Standard Research Classification > ECONOMICS (140000)
Divisions: Current > QUT Faculties and Divisions > QUT Business School
Copyright Owner: Copyright 2003 (please consult author)
Deposited On: 26 Aug 2004
Last Modified: 05 Jan 2011 23:23

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