Currency preferences and the Australian dollar
AbstractWe investigate the theory and empirics of currency substitution and currency complementarity. Analytical tractability is facilitated by focussing on a small currency. Data spanning 1985 to the turn of the century contain evidence of the Australian dollar’s substitution for the mark and complementarity with the yen, consistent with our theory that international variables will in general affect the demand for domestic money. Our theory also predicts third-currency effects, and the data reveal several of these. For example, rises in the US Federal Funds rate were associated with depreciations of the Australian dollar against the yen, controlling for the spread between interest rates in Australia and Japan.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by EconWPA in its series International Finance with number 0502006.
Length: 40 pages
Date of creation: 08 Feb 2005
Date of revision:
Note: Type of Document - pdf; pages: 40
Contact details of provider:
Web page: http://220.127.116.11
Atemporally non-separable preferences; Money demand; Cash in advance; Third-currency effects; Uncovered Interest Parity;
Other versions of this item:
- E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
- F31 - International Economics - - International Finance - - - Foreign Exchange
- F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-04-16 (All new papers)
- NEP-MAC-2005-04-16 (Macroeconomics)
- NEP-MON-2005-04-16 (Monetary Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Robert E. Lucas Jr. & Nancy L. Stokey, 1984.
"Money and Interest in Cash-In-Advance Economy,"
628, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Clements, Kenneth W. & Selvanathan, Saroja, 1991.
"The Economic Determinants Of Alcohol Consumption,"
Australian Journal of Agricultural Economics,
Australian Agricultural and Resource Economics Society, vol. 35(02), August.
- Kenneth W. Clements & Saroja Selvanathan, 1991. "The Economic Determinants Of Alcohol Consumption," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 35(2), pages 209-231, 08.
- Jon Faust & John H. Rogers & Jonathan H. Wright, 2001.
"Exchange rate forecasting: the errors we've really made,"
International Finance Discussion Papers
714, Board of Governors of the Federal Reserve System (U.S.).
- Faust, Jon & Rogers, John H. & H. Wright, Jonathan, 2003. "Exchange rate forecasting: the errors we've really made," Journal of International Economics, Elsevier, vol. 60(1), pages 35-59, May.
- Robert E. Lucas, Jr., 2000. "Inflation and Welfare," Econometrica, Econometric Society, vol. 68(2), pages 247-274, March.
- Tobin, James, 1969. "A General Equilibrium Approach to Monetary Theory," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 1(1), pages 15-29, February.
- Nucci, Francesco, 2003. "Cross-currency, cross-maturity forward exchange premiums as predictors of spot rate changes: Theory and evidence," Journal of Banking & Finance, Elsevier, vol. 27(2), pages 183-200, February.
- Clements, Kenneth W & Selvanathan, Antony & Selvanathan, Saroja, 1996. "Applied Demand Analysis: A Survey," The Economic Record, The Economic Society of Australia, vol. 72(216), pages 63-81, March.
- Maurice Obstfeld & Kenneth S. Rogoff, 1996. "Foundations of International Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262150476, January.
- Cuddington, John T., 1982. "Currency substitution: a critical survey from a portfolio balance perspective," Proceedings, Federal Reserve Bank of San Francisco, issue 6, pages 37-79.
- Hodrick, Robert & Vassalou, Maria, 2002. "Do we need multi-country models to explain exchange rate and interest rate and bond return dynamics?," Journal of Economic Dynamics and Control, Elsevier, vol. 26(7-8), pages 1275-1299, July.
- Michael D. Bordo & Ehsan U. Choudhri, 1980.
"Currency Substitution and the Semand for Money: Some Evidence for Canada,"
UCLA Economics Working Papers
190, UCLA Department of Economics.
- Bordo, Michael D & Choudhri, Ehsan U, 1982. "Currency Substitution and the Demand for Money: Some Evidence for Canada," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 14(1), pages 48-57, February.
- Boyer, Russell S. & Kingston, Geoffrey H., 1987. "Currency substitution under finance constraints," Journal of International Money and Finance, Elsevier, vol. 6(3), pages 235-250, September.
- Lucas, Robert E., 1984. "Money in a theory of finance," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 21(1), pages 9-46, January.
- Traa, Bob M., 1985. "Indirect currency substitution : A structural approach," Economics Letters, Elsevier, vol. 18(2-3), pages 233-236.
- Brittain, Bruce, 1981. "International Currency Substitution and the Apparent Instability of Velocity in Some Western European Economies and in the United States," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 13(2), pages 135-55, May.
- André Mollick & Tibebe Assefa, 2013. "Carry-trades on the yen and the Swiss franc: are they different?," Journal of Economics and Finance, Springer, vol. 37(3), pages 402-423, July.
- Fullerton, Thomas M., Jr. & Molina, Angel L., Jr. & Pisani, Michael J., 2009. "Peso Acceptance Patterns in El Paso," MPRA Paper 17900, University Library of Munich, Germany, revised 19 Jun 2009.
- Martin Melecky, 2008.
"A Structural Investigation of Third-Currency Shocks to Bilateral Exchange Rates,"
Wiley Blackwell, vol. 11(1), pages 19-48, 05.
- Melecky, Martin, 2007. "A structural investigation of third-currency shocks to bilateral exchange rates," MPRA Paper 7402, University Library of Munich, Germany.
- Melecky, Martin, 2008. "An alternative framework for foreign exchange risk management of sovereign debt," Policy Research Working Paper Series 4458, The World Bank.
- Melecky, M, 2007. "Currency Preferences in a Tri-Polar Model of Foreign Exchange," MPRA Paper 4186, University Library of Munich, Germany.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (EconWPA).
If references are entirely missing, you can add them using this form.