The Effectiveness of Central Bank Intervention through the Noise Trading Channel : Evidence from the Australian and the Japan Case

This paper attempts to shed light on the effectiveness of central bank intervention through the noise trading channel. This channel suggests that central banks should intervene in highly volatile market periods and keep their interventions secret. We conduct an empirical study for the Reserve Bank of Australia (RBA) and the Bank of Japan (BoJ). The interventions data are respectively, from December 12, 1983 to September 24, 2006 and from April 1, 1991 to March 31, 2004. Using Logit and Probit model, our findings are supporting the noise trading channel and therefore secret intervention