Abstract
This article applies nonlinear econometric models to empirically investigate the effectiveness of the Reserve Bank of Australia (RBA) exchange rate policy. First, results from a STARTZ model are provided revealing nonlinear mean reversion of the Australian dollar exchange rate. Second, a STR-GARCH model suggests that RBA interventions account for this result by strengthening foreign exchange traders’ confidence in fundamental analysis. This is in line with the so-called coordination channel of intervention effectiveness.
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