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Who Leads the Australian Interest Rates in the Short and Long Run? An Application of Long Run Structural Modelling

Author

Listed:
  • A. Mansur M. Masih

    (Department of Finance & Economics, King Fahd University of Petroleum & Minerals, KFUPM P.O. Box # 1764, Dhahran 31261, Saudi Arabia)

  • Trent Winduss

    (LinQ Capital Limited, Perth, Western Australia)

Abstract

The focus of this paper is to test the cointegrating and Granger-causal relationships between Australian short-run interest rate securities and those of the UK, US, Japan, Hong Kong, Singapore and New Zealand. A relatively new methodology known as Long Run Structural Model (LRSM) (Pesaran and Shin, 2002) followed by vector error-correction model, generalized variance decompositions, generalized impulse response, and persistence profile have been used. The findings tend to suggest that Australia's short-term interest rates are cointegrated with those of its major trading partners. The results of this paper indicate that the ability of Australian policy makers to target and manipulate domestic interest rates may be limited and that they should look to the policy decisions of the US and Japan in particular when setting domestic policy.

Suggested Citation

  • A. Mansur M. Masih & Trent Winduss, 2006. "Who Leads the Australian Interest Rates in the Short and Long Run? An Application of Long Run Structural Modelling," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 9(01), pages 1-24.
    • Handle: RePEc:wsi:rpbfmp:v:09:y:2006:i:01:n:s0219091506000628
    DOI: 10.1142/S0219091506000628
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    Citations

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    Cited by:

    1. Shawtari, Fekri Ali & Masih, Mansur, 2017. "Granger-causal relationship between macroeconomic variables and stock prices: evidence from South Africa," MPRA Paper 99848, University Library of Munich, Germany.
    2. Sapian, Safeza & Masih, Mansur, 2018. "Do macroeconomic factors affect the credit risk of islamic banks? evidence from Malaysia," MPRA Paper 100719, University Library of Munich, Germany.
    3. Kim, Suk-Joong & Nguyen, Do Quoc Tho, 2008. "The reaction of the Australian financial markets to the interest rate news from the Reserve Bank of Australia and the U.S. Fed," Research in International Business and Finance, Elsevier, vol. 22(3), pages 378-395, September.
    4. Roland Füss & Denis Schweizer, 2012. "Short and long-term interactions between venture capital returns and the macroeconomy: evidence for the United States," Review of Quantitative Finance and Accounting, Springer, vol. 38(3), pages 391-410, April.
    5. Konstantinos Vergos & Benjamin Wanger, 2019. "Evaluating interdependencies in African markets A VECM approach," Bulletin of Applied Economics, Risk Market Journals, vol. 6(1), pages 65-85.
    6. Rosle, Alia Nadira & Masih, Mansur, 2018. "Can the islamic banks’ credit risk be explained by macroeconomic shocks? evidence from Malaysia," MPRA Paper 107059, University Library of Munich, Germany.
    7. Abbas, Amir & Masih, Mansur, 2017. "Islamic stock index, conventional stock index and macroeconomic variables," MPRA Paper 104806, University Library of Munich, Germany.

    More about this item

    Keywords

    Australian economic integration; cointegration; Granger causality; long run structural modelling;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G2 - Financial Economics - - Financial Institutions and Services
    • G3 - Financial Economics - - Corporate Finance and Governance

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