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The Current Account, Monetary Policy, Market Sentiment And The Real Exchange Rate: Some Implications For The Farm Sector

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  • O'Mara, L. Paul
  • Wallace, N.A.
  • Meshios, Helen

Abstract

The real effective value of the Australian dollar declined sharply between early 1985 and September 1986. 'Market fundamentals' associated with the deterioration in Australia's terms of trade and current account, and rising foreign debt levels are the commonly cited explanation for the decline. However, several other shorter term influences may have also contributed. Theoretical and empirical analysis indicates that market fundamentals might explain, at most, 20 percentage points of the 37 per cent decline in the rate over this period. Thus, a significant real appreciation would be expected over the medium term prior to, and quite independently of, any recovery in Australia's terms of trade in general or in world farm commodity prices in particular.

Suggested Citation

  • O'Mara, L. Paul & Wallace, N.A. & Meshios, Helen, 1987. "The Current Account, Monetary Policy, Market Sentiment And The Real Exchange Rate: Some Implications For The Farm Sector," Australian Journal of Agricultural Economics, Australian Agricultural and Resource Economics Society, vol. 31(03), December.
  • Handle: RePEc:ags:ajaeau:22272
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    References listed on IDEAS

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    1. J. Peter Neary, 1980. "Nontraded Goods and the Balance of Trade in a Neo-Keynesian Temporary Equilibrium," The Quarterly Journal of Economics, Oxford University Press, vol. 95(3), pages 403-429.
    2. Trevor, Robert G & Donald, Stephen G, 1986. "Exchange Rate Regimes and the Volatility of Financial Prices: The Australian Case," The Economic Record, The Economic Society of Australia, vol. 0(0), pages 58-66, Supplemen.
    3. Turnovsky, Stephen J, 1981. "Monetary Policy and Foreign Price Disturbances under Flexible Exchange Rates: A Stochastic Approach," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 13(2), pages 156-176, May.
    4. Bhandari, Jagdeep S, 1981. "Exchange Rate Overshooting Revisited," The Manchester School of Economic & Social Studies, University of Manchester, vol. 49(2), pages 165-172, June.
    5. Gregory, R.G., 1976. "Some Implications Of The Growth Of The Mineral Sector," Australian Journal of Agricultural Economics, Australian Agricultural and Resource Economics Society, vol. 20(02), August.
    6. Barro, Robert J & Grossman, Herschel I, 1971. "A General Disequilibrium Model of Income and Employment," American Economic Review, American Economic Association, vol. 61(1), pages 82-93, March.
    7. Corden, W M, 1978. "Keynes and the Others: Wage and Price Rigidities in Macro-economic Models," Oxford Economic Papers, Oxford University Press, vol. 30(2), pages 159-180, July.
    8. Muellbauer, John & Portes, Richard, 1978. "Macroeconomic Models with Quantity Rationing," Economic Journal, Royal Economic Society, vol. 88(352), pages 788-821, December.
    9. L.P. O'Mara & N.A. Wallace & Helen Meshios, 1987. "The Current Account, Monetary Policy, Market Sentiment And The Real Exchange Rate: Some Implications For The Farm Sector," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 31(3), pages 219-241, December.
    10. Dornbusch, Rudiger, 1976. "Expectations and Exchange Rate Dynamics," Journal of Political Economy, University of Chicago Press, vol. 84(6), pages 1161-1176, December.
    11. Gray, Malcolm R & Turnovsky, Stephen J, 1979. "The Stability of Exchange Rate Dynamics under Perfect Myopic Foresight," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 20(3), pages 643-660, October.
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    Cited by:

    1. O'Mara, L. Paul, 1988. "The Medium Term Outlook for the Real Exchange Rate and Real Interest Rates," Review of Marketing and Agricultural Economics, Australian Agricultural and Resource Economics Society, vol. 56(01), April.
    2. Hogan, Lindsay I. & Sterland, Barry, 1991. "Inflation, Monetary Policy and Australia's Primary Industries," 1991 Conference (35th), February 11-14, 1991, Armidale, Australia 145905, Australian Agricultural and Resource Economics Society.
    3. Tie, Graeme & Bartley, Scott W. & O'Mara, L. Paul, 1994. "Agriculture in an open market economy," 1994 Conference (38th), February 8-10, 1994, Wellington, New Zealand 147927, Australian Agricultural and Resource Economics Society.

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