A Monetary Approach to Exchange Market Disequilibrium in Australia: 1975–97

Mohammad Taslim

Australian Economic Papers, 2003, vol. 42, issue 2, 183-196

Abstract: Under a managed float, the central bank may respond to an exchange market disequilibrium by changing either the international reserves or the exchange rate or both such that neither the reserve changes nor the exchange rate movements convey an unambiguous indication of the nature or extent of the disequilibrium. Girton and Roper (1977) suggested an index, namely the exchange market pressure, to capture the disequilibrium. This paper utilises a similar framework to study the exchange market pressure in Australia during 1975–1997 and reserve transactions. It is found that there were substantial reserve transactions in the face of exchange market pressure even after the switch to the floating rate system and the deregulation of the financial system. As a result of these transactions, sharp fluctuations in the exchange rate were moderated and the actual exchange rate appeared to broadly follow the market equilibrium rate.

Date: 2003
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Persistent link: https://EconPapers.repec.org/RePEc:bla:ausecp:v:42:y:2003:i:2:p:183-196

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