[Online] 255 p.25,26. Available from: of Chile connection.ebscohost.com [Accessed 19/03/2012]. J. A. (1969). General Equilibrium Approach To Monetary Theory. Journal of [Online] 1 (1), p.15-29. Available from: Money, Credit and Banking [Accessible 19/03/2012]. APPENDICIES Appendix 1 : Analytical Methodologies of Empirical Studies on Intervention Effects on the Exchange Rate using OLS Sources Economic Specification Data Requirements Advantages and Disadvantages Dominguez and OLS Regression of Mean Intervention, Simple technique • • Frankel Equation exchange rate, Simultaneity between • (1993a) = + + + interest rate, country exchange rate changes and Δst α βIt γ′Xt εt, where is the exchange risk premium (e.g., intervention Δs rate change, I is spreads on sovereign Analyzes only • intervention, and the X bond) on a daily basis contemporaneous vector includes the Compilation of news effects with no insight on • interest differential, the items, reports of long-term effects country risk premium, central bank Provides no insight on the • and possible dummies, intervention, and other channel of transmission including on seasonality relevant information effects (e.g., Monday for dummy variables effect), news and reports of central bank presence in the market Edison (1993) Local and foreign Assuming rational OLS Regression of Risk • Dominguez and currency bond expectations or the use of Premium Equation Frankel + supplies, exchange survey data has a number of ρt= θ1Bt θ2B*t, (1993a, 1993b) where + rate, interest rate on a problems. ρt= r – r* E(st+1) Sarno and Taylor daily basis. Simultaneity between st, – • (2001) the risk premium, Daily survey data on exchange rate changes and r ρtis • is domestic exchange rate relative bond supplies (or interest rates, is foreign expectations (if intervention) r* interest rates, is local rational expectations B currency– denominated are not assumed) bonds, and is foreign In the absence of data B* • currency–denominated on bond supplies, bonds. intervention may be The risk premium, is used as a proxy for the ρt, measured by deviations
of Chile [Online] 255 p.25,26. Available from: connection.ebscohost.com [Accessed 19/03/2012]. J. A. (1969). General Equilibrium Approach To Monetary Theory. Journal of Money, Credit and Banking [Online] 1 (1), p.15-29. Available from: [Accessible 19/03/2012]. APPENDICIES Appendix 1 : Analytical Methodologies of Empirical Studies on Intervention Effects on the Exchange Rate using OLS Sources Economic Specification Data Requirements Advantages and Disadvantages Dominguez and Frankel (1993a) OLS Regression of Mean Equation Δst = α + βIt + γ′Xt + εt, where Δs is the exchange rate change, I is intervention, and the X vector includes the interest differential, the country risk premium, and possible dummies, including on seasonality effects (e.g., Monday effect), news and reports of central bank presence in the market • Intervention, exchange rate, interest rate, country risk premium (e.g., spreads on sovereign bond) on a daily basis • Compilation of news items, reports of central bank intervention, and other relevant information for dummy variables • Simple technique • Simultaneity between exchange rate changes and intervention • Analyzes only contemporaneous effects with no insight on long-term effects • Provides no insight on the channel of transmission Edison (1993) Dominguez and Frankel (1993a, 1993b) Sarno and Taylor (2001) OLS Regression of Risk Premium Equation ρt= θ1Bt + θ2B*t, where ρt= r – r* + E(st+1) – st, ρtis the risk premium, r is domestic interest rates, r* is foreign interest rates, B is local currency– denominated bonds, and B* is foreign currency–denominated bonds. The risk premium, ρt, is measured by deviations • Local and foreign currency bond supplies, exchange rate, interest rate on a daily basis. • Daily survey data on exchange rate expectations (if rational expectations are not assumed) • In the absence of data on bond supplies, intervention may be used as a proxy for the Assuming rational expectations or the use of survey data has a number of problems. • Simultaneity between exchange rate changes and relative bond supplies (or intervention)