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Currency preferences and the Australian dollar

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Author Info
Geoffrey Kingston (School of Economics, University of New South Wales)
Martin Melecky (School of Economics, University of New South Wales)

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Abstract

We 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.

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Publisher Info
Paper provided by EconWPA in its series International Finance with number 0502006.

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Length: 40 pages
Date of creation: 08 Feb 2005
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Handle: RePEc:wpa:wuwpif:0502006

Note: Type of Document - pdf; pages: 40
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Web page: http://129.3.20.41

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Related research
Keywords: Atemporally non-separable preferences Money demand Cash in advance Third-currency effects Uncovered Interest Parity

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Find related papers by JEL classification:
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

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References listed on IDEAS
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.:
  1. 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. [Downloadable!] (restricted)
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  2. 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. [Downloadable!] (restricted)
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Cited by:
(explanations, 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.)

  1. Melecky, Martin, 2007. "A structural investigation of third-currency shocks to bilateral exchange rates," MPRA Paper 5114, University Library of Munich, Germany. [Downloadable!]
    Other versions:
  2. Melecky, M, 2007. "Currency Preferences in a Tri-Polar Model of Foreign Exchange," MPRA Paper 4186, University Library of Munich, Germany. [Downloadable!]
  3. Melecky, Martin, 2008. "An alternative framework for foreign exchange risk management of sovereign debt," Policy Research Working Paper Series 4458, The World Bank. [Downloadable!]
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