Managed Floating in Australia

Abstract

This paper evaluates the level of managed floating and the exchange rate policy in Australia during the officially floating period from 1984 to 2004. We construct index measures of exchange market pressure and foreign exchange intervention using a small open economy monetary model. The estimation uses the Johansen cointegration method as the structural macroeconomic model is assumed to represent long-run equilibrium relationships. We find that the RBA mainly implemented leaning-against-the-wind exchange rate policy that aimed at guiding the exchange rate back to the equilibrium value while reducing the variability of the dynamic adjustment path.