Assessing the Impact of Central Bank Intervention on Exchange ‎Rate: New Evidence from Transfer Function Modeling

Assessing the Impact of Central Bank Intervention on Exchange ‎Rate: New Evidence from Transfer Function Modeling

Abdelwahed Trabelsi*, Abdalla El-Habil**‎

abdalla20022002@yahoo.com

‎*High Institute of Management, University of Tunis,Tunis‎ ‎**Department of Applied Statistics, Faculty of Economics and ‎Administrative Sciences; Al-Azhar University, Gaza, Palestine.‎

Received : 06-06-2005 , Accepted : 24-05-2006

Language: English

Abstract

Recently, only econometric models like GARCH and EGARCH investigated the instant effects of central banks interventions. In this paper, extended study for investigating and analyzing the dynamic effects is conducted using transfer function modeling. We investigate the effect of the Reserve Bank of Australia on the $US/$A exchange rate in the period 1983 -1997, which can be broken into four distinct phases. Equally, we investigate the changing effectiveness of daily intervention into various separate components. We rely on a new strategy implied by the transfer function modeling that outperforms the traditionally used EGARCH one. This methodology is considered a very important tool; it leads to evaluating the instant and dynamic effects in long term and for avoiding future economic shocks. As far as our knowledge, this is the first study investigating the effects of foreign exchange market interventions on the exchange rate by using the transfer function modeling.

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