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Modelling the Interaction of Fundamental and Portfolio Exchange Rate Behaviour: An Application to Australia and the ASEAN3

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  • Guay C. Lim

Abstract

This paper explores the interaction of fundamental and portfolio factors in the determination of the exchange rate. The weights on the factors evolve endogenously as a function of relative fundamental and portfolio errors. The model also generates exchange rate mixture distributions that may be skewed, leptokurtic or bimodal and as such can explain small and large changes endogenously. The model is applied to the exchange rates of Australia and the ASEAN3 to examine the role of fundamental and portfolio behaviour, especially over the 1997/98 currency crisis period.

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  • Guay C. Lim, 2002. "Modelling the Interaction of Fundamental and Portfolio Exchange Rate Behaviour: An Application to Australia and the ASEAN3," Australian Economic Papers, Wiley Blackwell, vol. 41(4), pages 557-576, December.
    • Handle: RePEc:bla:ausecp:v:41:y:2002:i:4:p:557-576
    DOI: 10.1111/1467-8454.00180
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    Cited by:

    1. Daud, Ariff & Masih, Mansur, 2017. "Is there any relationship between exchange rate and investment ? evidence from Australia," MPRA Paper 110655, University Library of Munich, Germany.
    2. Ahmad Zubaidi Baharumshah & Raj Aggarwal & Chan Tze Haw, 2007. "East Asian Real Exchange Rates and PPP: New Evidence from Panel-data Tests," Global Economic Review, Taylor & Francis Journals, vol. 36(2), pages 103-119.

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