Measures of National Export Price Volatility Based on the Capital Asset Pricing Model

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Measures of National Export Price Volatility Based on the Capital Asset Pricing Model

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Allan P. Layton
Abbas Valadkhani

Abstract

As is the case with most small open economies, volatility in Australia’s export prices is an important source of national macroeconomic disturbance largely out of its control given its choice of export bundle. The Capital Asset Pricing Model of portfolio theory is employed as a useful framework for distinguishing the extent to which export price volatility consists of global versus country-specific risk for the set of 14 OECD countries investigated. We find that global (systematic) risk is evidently becoming more important for many of the countries in the OECD sample over the last 25 years as compared with the previous 25 year period. The paper also finds that, by a number of different measures, whilst Australia’s export price growth has apparently become more highly associated with World export prices in recent years, it nonetheless continues to have one of the more volatile set of export prices among OECD countries.

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Paper provided by School of Economics and Finance, Queensland University of Technology in its series School of Economics and Finance Discussion Papers and Working Papers Series with number 171.

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Date of creation: 20 Jan 2004
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Handle: RePEc:qut:dpaper:171

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Find related papers by JEL classification:
E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
O56 - Economic Development, Technological Change, and Growth - - Economywide Country Studies - - - Oceania
F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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Christopher Kent, 1997. "The Response of the Current Account to Terms of Trade Shocks: A Panel-data Study," RBA Research Discussion Papers rdp9705, Reserve Bank of Australia. [Downloadable!]
Harvie, Charles & Van Hoa, Tran, 1994. "Terms of trade shocks and macroeconomic adjustment in a resource exporting economy : The case of Australia," Resources Policy, Elsevier, vol. 20(2), pages 101-112, June. [Downloadable!] (restricted)

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