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Exchange rates, interest rates and current account news: some evidence from Australia

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  • Karfakis, Costas
  • Kim, Suk-Joong

Abstract

This paper investigates the Australian current account announcement effects on exchange rates and interest rates for the period July 1985 to December 1992. The results indicate that the Australian dollar depreciates and interest rate rise as a result of an announcement of larger than expected current account deficit, which is consistent with the portfolio balance effect. In addition, significant structural breaks are found and the analysis shows that after December 1989 the current news affect neither exchange rates nor interest rates.
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  • Karfakis, Costas & Kim, Suk-Joong, 1995. "Exchange rates, interest rates and current account news: some evidence from Australia," Journal of International Money and Finance, Elsevier, vol. 14(4), pages 575-595, August.
    • Handle: RePEc:eee:jimfin:v:14:y:1995:i:4:p:575-595
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    1. Hardouvelis, Gikas A., 1988. "Economic news, exchange rates and interest rates," Journal of International Money and Finance, Elsevier, vol. 7(1), pages 23-35, March.
    2. Banerjee, Anindya & Dolado, Juan J. & Galbraith, John W. & Hendry, David, 1993. "Co-integration, Error Correction, and the Econometric Analysis of Non-Stationary Data," OUP Catalogue, Oxford University Press, number 9780198288107.
    3. Hardouvelis, Gikas A, 1987. "Reserves Announcements and Interest Rates: Does Monetary Policy Matter?," Journal of Finance, American Finance Association, vol. 42(2), pages 407-422, June.
    4. J.S.Y. Wong, 1988. "The Role of 'News' in the Australian Foreign Exchange Market," Economics Discussion / Working Papers 88-19, The University of Western Australia, Department of Economics.
    5. Hogan, Ked & Melvin, Michael & Roberts, Dan J., 1991. "Trade balance news and exchange rates: Is there a policy signal?," Journal of International Money and Finance, Elsevier, vol. 10(1, Supple), pages 90-99, March.
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    Cited by:

    1. Kim, Suk-Joong & Sheen, Jeffrey, 2000. "International linkages and macroeconomic news effects on interest rate volatility -- Australia and the US," Pacific-Basin Finance Journal, Elsevier, vol. 8(1), pages 85-113, March.
    2. Pearce, Douglas K. & Solakoglu, M. Nihat, 2007. "Macroeconomic news and exchange rates," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 17(4), pages 307-325, October.
    3. Van Newby, 2002. "The effects of news on exchange rates when the risk premium is considered," Applied Financial Economics, Taylor & Francis Journals, vol. 12(2), pages 147-153.
    4. sonia KOUKI, 2019. "Analysis of Risk Premium Behavior in the Tunisian Foreign Exchange Market During Crisis Period," Journal of Academic Finance, RED research unit, university of Gabes, Tunisia, vol. 10(2), pages 28-38, December.
    5. Mark P. Taylor & Lucio Sarno, 2001. "Official Intervention in the Foreign Exchange Market: Is It Effective and, If So, How Does It Work?," Journal of Economic Literature, American Economic Association, vol. 39(3), pages 839-868, September.
    6. Suk-Joong Kim & Jeffrey Sheen, 2018. "Minute-by-Minute Dynamics of the Australian Bond Futures Market in Response to New Macroeconomic Information," World Scientific Book Chapters, in: Information Spillovers and Market Integration in International Finance Empirical Analyses, chapter 7, pages 203-227, World Scientific Publishing Co. Pte. Ltd..
    7. Michael Graham & Jussi Nikkinen & Petri Sahlström, 2003. "Relative importance of scheduled macroeconomic news for stock market investors," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 27(2), pages 153-165, June.
    8. Munazza Jabeen & Abdul Rashid & Hajra Ihsan, 2022. "The news effects on exchange rate returns and volatility: Evidence from Pakistan," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 27(1), pages 745-769, January.
    9. S. Rubun Dey & Christopher J. Neely, 2010. "A survey of announcement effects on foreign exchange returns," Review, Federal Reserve Bank of St. Louis, vol. 92(Sep), pages 417-464.
    10. Terry Boulter & Celeste Ping Fern Tan, 2000. "The Short Run Impact of Scheduled Macroeconomic Announcements on the Australian Dollar during 1998," School of Economics and Finance Discussion Papers and Working Papers Series 082, School of Economics and Finance, Queensland University of Technology.
    11. Rafael R. Rebitzky, 2010. "The Influence Of Fundamentals On Exchange Rates: Findings From Analyses Of News Effects," Journal of Economic Surveys, Wiley Blackwell, vol. 24(4), pages 680-704, September.
    12. Mohamed Ariff & Alireza Zarei, 2018. "One Approach To Resolve The Exchange Rate Puzzle: Results Using Data From The United Kingdom And The United States," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 63(05), pages 1367-1384, December.
    13. Ali Kutan & Tansu Aksoy, 2003. "Public Information Arrival and the Fisher Effect in Emerging Markets: Evidence from Stock and Bond Markets in Turkey," Journal of Financial Services Research, Springer;Western Finance Association, vol. 23(3), pages 225-239, June.
    14. sonia KOUKI, 2019. "Analysis of Risk Premium Behavior in the Tunisian Foreign Exchange Market During Crisis Period," Journal of Academic Finance, RED research unit, university of Gabes, Tunisia, vol. 10(2), pages 28-38, December.
    15. Olcay Yucel Emir & Fatih Ozatay & Gulbin Sahinbeyoğlu, 2007. "Effects of US interest rates and news on the daily interest rates of a highly indebted emerging economy: evidence from Turkey," Applied Economics, Taylor & Francis Journals, vol. 39(3), pages 329-342.
    16. Catherine S. F. Ho & M. Ariff, 2008. "The Role of Non-Parity Fundamentals in Exchange Rate Determination: Australia and the Asia Pacific Region," CARF F-Series CARF-F-125, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.

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