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The determinants of australian exchange rate: a time series analysis

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  • Atif, Syed Muhammad
  • Sauytbekova, Moldir
  • Macdonald, James

Abstract

The paper analyzes Australian exchange rate and its determinants by providing an insight into the economic and non-economic factors. By drawing a comparison between quarterly and annual data over the period of 1975 to 2012, it is suggested that Australia’s trade components and macroeconomic indicators such as output and liquidity relative to the US, play a significant role in determination of its exchange rates. However, interest rate and inflation appear insignificant in this relationship. The study also emphasizes on the pertinence of unobservable effects such as political events and external shocks in influencing the exchange rate. Engle-Granger Cointegration test exhibits a long run relationship between exchange rate and its determinants, and corroborates the substantial role of macroeconomic indicators in diminishing the uncertainty in foreign exchange market.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 42309.

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Date of creation: 30 Oct 2012
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Handle: RePEc:pra:mprapa:42309

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Keywords: Exchange Rate; Backward Elimination;

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  1. Antonia LÃPEZ VILLAVICENCIO & Josep Lluís RAYMOND BARA, 2008. "Short-Run And Long-Run Determinants Of The Real Exchange Rate In Mexico," The Developing Economies, Institute of Developing Economies, vol. 46(1), pages 52-74.
  2. Grubacic, Sanja, 2002. " Exchange Rate Adjustment in Partially Liberalized Economy," Economic Change and Restructuring, Springer, vol. 35(3), pages 253-70.
  3. Mariam Camarero & Cecilio Tamarit, 2001. "A panel cointegration approach to the estimation of the peseta real exchange rate," Working Papers 01-08, Asociación Española de Economía y Finanzas Internacionales.
  4. Baillie, Richard T. & Selover, David D., 1987. "Cointegration and models of exchange rate determination," International Journal of Forecasting, Elsevier, vol. 3(1), pages 43-51.
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