Identifying the efficacy of central bank interventions: evidence from Australia and Japan

Using a model incorporating the endogenous relationship between exchange rates and intervention, we show how a change in central bank policy can be used as an identification assumption. Estimating this model with simulated GMM for daily data from Australia and Japan, we find that a US$100 million purchase appreciates the Australian dollar by 1.3-1.8% but the yen by just 0.2%. Almost all of the impact of an intervention occurs during the day it is conducted and we confirm that central banks typically lean against the wind.