Sterilised and Unsterilised intervention of RBA differencing with dirtying the float (1 Viewer)

moon_princess

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Was studying dixon this whole time until i saw Riley and they've mentioned sterilised and unsterilised intervention? Can someone explain if this is basically dirtying the float? Very confused!

Would appreciate anyone that knows anything about the relationship between sterilised, unsterilised and dirtying the float
 

mrlouis1

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Don't worry about sterilised, unsterilised

Just ensure you know that dirtying the float involves the RBA intervening in FOREX markets to stabilise the A$ by EITHER buying or selling domestic currency when it feels that a large short-term change in the exchange rate (possibly due to excessive speculation) will be harmful to the economy

The RBA can curb a rapid depreciation by buying A$, putting upward pressure on the exchange rate
Alternatively, the RBA can sell A$ to prevent a rapid appreciation

They do this with foreign exchange reserves
 

mrlouis1

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Was studying dixon this whole time until i saw Riley and they've mentioned sterilised and unsterilised intervention? Can someone explain if this is basically dirtying the float? Very confused!

Would appreciate anyone that knows anything about the relationship between sterilised, unsterilised and dirtying the float
Riley complicates things
 

vinlatte

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Was studying dixon this whole time until i saw Riley and they've mentioned sterilised and unsterilised intervention? Can someone explain if this is basically dirtying the float? Very confused!

Would appreciate anyone that knows anything about the relationship between sterilised, unsterilised and dirtying the float
Um, sterilising seems too medical for economics? I don't know, we usually just call it dirtying the float. Here are some notes on exchange rates:

There are three ways to adjust exchange rates: fixed, floating and managed.

Fixed is pinning the exchange rate to another exchange rate, like how AUD was fixed to the British Pound last century. The AUD would mirror the price fluctuations as the GBP.

Floating is allowing the exchange rate to be influenced by market forces of demand and supply. This is how AUD is currently, as the ForEx allows the dollar to fluctuate in price. Note that this makes the exchange rate an automatic stabiliser.

Managed exchange rate is the same as 'dirtying the float'. The RBA intevenes with the exchange rate by trading foreign currency to influence the demand and supply of AUD.
To increase the AUD value, they would purchase more AUD with foreign currency, thus increasing demand and reducing the supply on the ForEx. To decrease the AUD value, the RBA would have to purchase foreign currency in order to sell AUD and increase the supply on the ForEx.
 

vermillion

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lmaoo i had to study riley too, i hate the textbook but my teacher gives us other resources.

”dirtying the float” is just the rba DIRECTLY interfering with australia’s floating exchange rate, through buying or selling foreign currency reserves.
sterilised - running open market operations of the same amount to offset the impact of buying/selling the fcr.
unsterilised - not running open market operations after dirtying the float, thus not offsetting any impacts of direct intervention.

also, the rba can INDIRECTLY interfere with the exchange rate by simply changing the cash rate:
(increase cash rate = appreciation, and decrease cash rate = depreciation)
the rba primarily targets stability and full employment, but if they indirectly interfere, it’s because they’re targeting the currency and exchange rate.
 

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