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Pricing to Market and a Volatile AUD

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  • Mark Crosby

    (Melbourne Business School, 200 Leicester Street, Carlton, Vic, 3053.)

Abstract

There are two features of exchange rate behaviour that are difficult to explain with conventional theoretical explanations. First, exchange rates are very volatile relative to fundamentals, and, second, departures from ‘fair value’ are very persistent. In this paper the implications of pricing-to-market models for exchange rate behaviour are examined. It is found that these models do better at explaining exchange rate behaviour than traditional models, though it would seem that there is still some way to go before we have a full understanding of high-to-medium frequency fluctuations in the exchange rate.

Suggested Citation

  • Mark Crosby, 2005. "Pricing to Market and a Volatile AUD," Australian Journal of Management, Australian School of Business, vol. 30(1), pages 145-158, June.
    • Handle: RePEc:sae:ausman:v:30:y:2005:i:1:p:145-158
    DOI: 10.1177/031289620503000108
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    References listed on IDEAS

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    5. Webber, A., 1999. "Dynamic and Long Run Responses of Import Prices to the Exchange Rate in the Asia-Pacific," Economics Working Papers WP99-11, School of Economics, University of Wollongong, NSW, Australia.
    6. Betts, Caroline & Devereux, Michael B., 2000. "Exchange rate dynamics in a model of pricing-to-market," Journal of International Economics, Elsevier, vol. 50(1), pages 215-244, February.
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