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Modeling the Australian Dollar-US Dollar Exchange Rate Using Cointegration Techniques


  • Karfakis, Costas
  • Phipps, Anthony


This paper examines the link between the Australian dollar's exchange rate and Australia's terms of trade. The US$/A$ rate is found to be cointegrated with the terms of trade, and the relationship between the two variables appears to be robust. An estimated error-correction model for changes in the nominal US$/A$ is shown to have reasonable out-of-sample predictive powers. Weak exogeneity tests within the Johansen framework indicate highly significant causality running from the terms of trade to the exchange rate but less significant causality running from the exchange rate to the terms of trade. Copyright 1999 by Blackwell Publishing Ltd.

Suggested Citation

  • Karfakis, Costas & Phipps, Anthony, 1999. "Modeling the Australian Dollar-US Dollar Exchange Rate Using Cointegration Techniques," Review of International Economics, Wiley Blackwell, vol. 7(2), pages 265-279, May.
  • Handle: RePEc:bla:reviec:v:7:y:1999:i:2:p:265-79

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    References listed on IDEAS

    1. Matthew Higgins & Thomas Klitgaard & Cedric Tille, 2005. "The income implications of rising U.S. international liabilities," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 11(Dec).
    2. C. Fred Bergsten & John Williamson (ed.), 2004. "Dollar Adjustment: How Far? Against What?," Peterson Institute Press: Special Reports, Peterson Institute for International Economics, number sr17, October.
    3. Juann H. Hung & Angelo Mascaro, 2004. "Return on Cross-Border Investment: Why Does U.S. Investment Abroad Do Better? Technical Paper 2004-17," Working Papers 16204, Congressional Budget Office.
    4. Catherine L. Mann, 1999. "Is the U.S. Trade Deficit Sustainable?," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 47.
    5. William R. Cline, 2005. "United States as a Debtor Nation, The," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 3993.
    6. Carol C. Bertaut & William L. Griever, 2004. "Recent developments in cross-border investment in securities," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Win, pages 19-31.
    7. C. Fred Bergsten & John Williamson (ed.), 2004. "Dollar Adjustment: How Far? Against What?," Peterson Institute Press: All Books, Peterson Institute for International Economics, number sr17.
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    Cited by:

    1. Sanidas, Elias, 2005. "The Australian Dollar's Long-Term Fluctuations and Trend: The Commodity Prices-cum-Economic Cycles Hypothesis," Economics Working Papers wp05-29, School of Economics, University of Wollongong, NSW, Australia.
    2. Tsen, Wong Hock, 2011. "The real exchange rate determination: An empirical investigation," International Review of Economics & Finance, Elsevier, vol. 20(4), pages 800-811, October.
    3. Narayan, Paresh Kumar & Wong, Philip, 2009. "A panel data analysis of the determinants of oil consumption: The case of Australia," Applied Energy, Elsevier, vol. 86(12), pages 2771-2775, December.
    4. Dimitris Hatzinikolaou & Metodey Polasek, 2005. "The commodity-currency view of the Australian dollar: A multivariate cointegration approach," Journal of Applied Economics, Universidad del CEMA, vol. 8, pages 81-99, May.
    5. Dungey, Mardi, 2004. "Identifying terms of trade effects in real exchange rate movements: evidence from Asia," Journal of Asian Economics, Elsevier, vol. 15(2), pages 217-235, April.
    6. Carmen Mar? Mart?ez, 2003. "The Structural Approach of a Natrex Model on Equilibrium Exchange Rates," UFAE and IAE Working Papers 588.03, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
    7. Reza Y. Siregar & Choo Lay Har, 2001. "Economic Fundamentals and Managed Floating Exchange Rate Regime in Singapore," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 26(1), pages 133-148, June.
    8. Cortes, Maria, 2007. "Examining Patterns of Bilateral Trade between Australia and Colombia by Using Cointegration Analysis and Error-Correction Models," Economics Working Papers wp07-20, School of Economics, University of Wollongong, NSW, Australia.
    9. Sanidas, Elias, 2014. "Four harmonic cycles explain and predict commodity currencies' wide long term fluctuations," Technological Forecasting and Social Change, Elsevier, vol. 87(C), pages 135-151.

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