IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this paper

The Role of Non-Parity Fundamentals in Exchange Rate Determination: Australia and the Asia Pacific Region

  • Catherine S. F. Ho

    (University Technology MARA)

  • M. Ariff

    (University of Tokyo & Bond University)

This paper extends the literature by looking at the contribution of non-parity variables after extracting the impact of parity variables on exchange rates of Australia and the Asia Pacific countries. Exchange rates are examined using high- and low-frequency multi-country panel time series data for a group of trade-related nations in the Asia Pacific, including Japan. Our findings suggest that exchange rate is affected by growth rate, and trade and capital flows: other less significant variables include sovereign debt; balance of payments; money supply; and trade openness. It also confirms that interest rate has significant effect on exchange rates while price effect is not significant in short run regressions. These key findings are robust across different time intervals, thus showing new findings on the exchange rate dynamics consistent with theories.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.carf.e.u-tokyo.ac.jp/pdf/workingpaper/fseries/129.pdf
Download Restriction: no

Paper provided by Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo in its series CARF F-Series with number CARF-F-125.

as
in new window

Length: 35 pages
Date of creation: Aug 2008
Handle: RePEc:cfi:fseres:cf125
Contact details of provider: Postal:
Hongo 7-3-1, Bunkyo-ku, Tokyo 113-0033

Phone: +81-3-5841-0682
Web page: http://www.carf.e.u-tokyo.ac.jp/english/
Email:


More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Mark, Nelson C. & Sul, Donggyu, 2001. "Nominal exchange rates and monetary fundamentals: Evidence from a small post-Bretton woods panel," Journal of International Economics, Elsevier, vol. 53(1), pages 29-52, February.
  2. Karras, Georgios & Song, Frank, 1996. "Sources of business-cycle volatility: An exploratory study on a sample of OECD countries," Journal of Macroeconomics, Elsevier, vol. 18(4), pages 621-637.
  3. Obstfeld, Maurice & Rogoff, Kenneth S., 1995. "Exchange Rate Dynamics Redux," Scholarly Articles 12491026, Harvard University Department of Economics.
  4. Sebastian Edwards, 2002. "The Great Exchange Rate Debate after Argentina," Working Papers 74, Oesterreichische Nationalbank (Austrian Central Bank).
  5. Giancarlo Marini & Giovanni Piersanti, 2003. "Fiscal Deficits and Currency Crises," CEIS Research Paper 15, Tor Vergata University, CEIS.
  6. Matthew B. Canzoneri & Robert E. Cumby & Behzad Diba, 1996. "Relative Labor Productivity and the Real Exchange Rate in the Long Run: Evidence for a Panel of OECD Countries," NBER Working Papers 5676, National Bureau of Economic Research, Inc.
  7. Maurice Obstfeld & Kenneth Rogoff, 1995. "The Mirage of Fixed Exchange Rates," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 73-96, Fall.
  8. Engel, Charles M & Flood, Robert P, 1985. "Exchange Rate Dynamics, Sticky Prices and the Current Account," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 17(3), pages 312-27, August.
  9. De La Cruz Martinez, Justino, 1999. "Mexico's balance of payments and exchange rates: a cointegration analysis," The North American Journal of Economics and Finance, Elsevier, vol. 10(2), pages 401-421.
  10. Kuo, Biing-Shen & Mikkola, Anne, 2001. "How Sure Are We about Purchasing Power Parity? Panel Evidence with the Null of Stationary Real Exchange Rates," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 33(3), pages 767-89, August.
  11. Dornbusch, Rudiger, 1987. "Exchange Rates and Prices," American Economic Review, American Economic Association, vol. 77(1), pages 93-106, March.
  12. Frankel, Jeffrey A. & Rose, Andrew K., 1996. "Currency crashes in emerging markets: An empirical treatment," Journal of International Economics, Elsevier, vol. 41(3-4), pages 351-366, November.
  13. Rivera-Batiz, Francisco L & Rivera-Batiz, Luis A, 2001. "International Financial Liberalization, Capital Flows, and Exchange Rates Regimes: An Introduction," Review of International Economics, Wiley Blackwell, vol. 9(4), pages 573-84, November.
  14. Dornbusch, Rudiger, 1976. "Expectations and Exchange Rate Dynamics," Journal of Political Economy, University of Chicago Press, vol. 84(6), pages 1161-1176, December.
  15. Carmen M. Reinhart & Kenneth S. Rogoff, 2004. "The Modern History of Exchange Rate Arrangements: A Reinterpretation," The Quarterly Journal of Economics, Oxford University Press, vol. 119(1), pages 1-48.
  16. Schnabl, Gunther & Baur, Dirk, 2001. "Purchasing power parity: Granger causality tests for the yen-dollar exchange rate," Tübinger Diskussionsbeiträge 213, University of Tübingen, School of Business and Economics.
  17. Reinhart, Carmen & Calvo, Guillermo & Leiderman, Leonardo, 1994. "The capital inflows problem: Concepts and issues," MPRA Paper 13902, University Library of Munich, Germany.
  18. Guillermo A. Calvo & Alejandro Izquierdo & Ernesto Talvi, 2003. "Sudden Stops, the Real Exchange Rate, and Fiscal Sustainability: Argentina's Lessons," NBER Working Papers 9828, National Bureau of Economic Research, Inc.
  19. Mathias Hoffmann & Ronald MacDonald, 2003. "A Re-examination of the Link between Real Exchange Rates and Real Interest Rate Differentials," CESifo Working Paper Series 894, CESifo Group Munich.
  20. Ronald MacDonald & Cezary WÛjcik, 2004. "Catching up: The role of demand, supply and regulated price effects on the real exchange rates of four accession countries," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 12(1), pages 153-179, 03.
  21. Frenkel, Jacob A, 1980. "Exchange Rates, Prices, and Money: Lessons from the 1920's," American Economic Review, American Economic Association, vol. 70(2), pages 235-42, May.
  22. Ricarda Demarmels & Andreas Fischer, 2003. "Understanding Reserve Volatility in Emerging Markets: A Look at the Long-Run," Working Papers 03.03, Swiss National Bank, Study Center Gerzensee.
  23. Adler, Michael & Lehmann, Bruce, 1983. " Deviations from Purchasing Power Parity in the Long Run," Journal of Finance, American Finance Association, vol. 38(5), pages 1471-87, December.
  24. Jacob A. Frenkel, 1980. "Exchange Rates, Prices and Money: Lessons from the 1920s," NBER Working Papers 0452, National Bureau of Economic Research, Inc.
  25. Hasan, Shahriar & Wallace, Myles, 1996. "Real exchange rate volatility and exchange rate regimes: Evidence from long-term data," Economics Letters, Elsevier, vol. 52(1), pages 67-73, July.
  26. Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-72, June.
  27. Guillermo A. Calvo & Carmen M. Reinhart, 2000. "Fear of Floating," NBER Working Papers 7993, National Bureau of Economic Research, Inc.
  28. Papell, David H. & Theodoridis, Hristos, 1998. "Increasing evidence of purchasing power parity over the current float," Journal of International Money and Finance, Elsevier, vol. 17(1), pages 41-50, February.
  29. 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.
  30. Reinhart, Carmen & Calvo, Guillermo, 1999. "Inversión de las corrientes de capital, tipo de cambio y dolarización
    [Capital Flow Reversals, the Exchange Rate Debate, and Dollarization]
    ," MPRA Paper 13692, University Library of Munich, Germany.
  31. Chinn, Menzie D, 2000. "The Usual Suspects? Productivity and Demand Shocks and Asia-Pacific Real Exchange Rates," Review of International Economics, Wiley Blackwell, vol. 8(1), pages 20-43, February.
  32. Joshua Aizenman & Nancy Marion, 1999. "Reserve Uncertainty and the Supply of International Credit," NBER Working Papers 7202, National Bureau of Economic Research, Inc.
  33. Jeffrey A. Frankel & Andrew K. Rose, 1995. "A Panel Project on Purchasing Power Parity: Mean Reversion Within and Between Countries," NBER Working Papers 5006, National Bureau of Economic Research, Inc.
  34. Tamim Bayoumi & Ronald MacDonald, 1999. "Deviations of Exchange Rates from Purchasing Power Parity: A Story Featuring Two Monetary Unions," IMF Staff Papers, Palgrave Macmillan, vol. 46(1), pages 5.
  35. Dornbusch, Rudiger, 1987. "Exchange Rate Economics: 1986," Economic Journal, Royal Economic Society, vol. 97(385), pages 1-18, March.
  36. Rogoff, Kenneth, 1999. "Monetary Models of Dollar/Yen/Euro Nominal Exchange Rates: Dead or Undead?," Economic Journal, Royal Economic Society, vol. 109(459), pages F655-59, November.
  37. Edison, Hali J. & Gagnon, Joseph E. & Melick, William R., 1997. "Understanding the empirical literature on purchasing power parity: the post-Bretton Woods era," Journal of International Money and Finance, Elsevier, vol. 16(1), pages 1-17, February.
  38. Mark, Nelson C, 1995. "Exchange Rates and Fundamentals: Evidence on Long-Horizon Predictability," American Economic Review, American Economic Association, vol. 85(1), pages 201-18, March.
  39. Dornbusch, Rudiger & Fischer, Stanley, 1980. "Exchange Rates and the Current Account," American Economic Review, American Economic Association, vol. 70(5), pages 960-71, December.
  40. Kwiatkowski, Denis & Phillips, Peter C. B. & Schmidt, Peter & Shin, Yongcheol, 1992. "Testing the null hypothesis of stationarity against the alternative of a unit root : How sure are we that economic time series have a unit root?," Journal of Econometrics, Elsevier, vol. 54(1-3), pages 159-178.
  41. Hsiao, Frank S. T. & Hsiao, Mei-Chu W., 2001. "Capital flows and exchange rates: recent Korean and Taiwanese experience and challenges," Journal of Asian Economics, Elsevier, vol. 12(3), pages 353-381.
  42. Sebastian Edwards & Mohsin S. Khan, 1985. "Interest Rate Determination in Developing Countries: A Conceptual Framework (Détermination du taux d'intérêt dans les pays en développement: cadre théorique) (Determinación de los tipos de inter," IMF Staff Papers, Palgrave Macmillan, vol. 32(3), pages 377-403, September.
  43. Ronald Macdonald & Mark P. Taylor, 1992. "Exchange Rate Economics: A Survey," IMF Staff Papers, Palgrave Macmillan, vol. 39(1), pages 1-57, March.
  44. Cheng, Benjamin S., 1999. "Beyond the purchasing power parity: testing for cointegration and causality between exchange rates, prices, and interest rates," Journal of International Money and Finance, Elsevier, vol. 18(6), pages 911-924, December.
  45. I. A. Moosa & N. E. Al-Loughani, 2003. "The role of fundamentalists and technicians in the foreign exchange market when the domestic currency is pegged to a basket," Applied Financial Economics, Taylor & Francis Journals, vol. 13(2), pages 79-84.
  46. Krol, Robert, 1996. "International capital mobility: evidence from panel data," Journal of International Money and Finance, Elsevier, vol. 15(3), pages 467-474, June.
  47. Henry, Olan T. & Olekalns, Nilss, 2002. "Does the Australian dollar real exchange rate display mean reversion," Journal of International Money and Finance, Elsevier, vol. 21(5), pages 651-666, October.
  48. John T. Harvey, 2001. "Exchange Rate Theory and "The Fundamentals"," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 24(1), pages 3-15, October.
  49. Grilli, Vittorio & Kaminsky, Graciela, 1991. "Nominal exchange rate regimes and the real exchange rate : Evidence from the United States and Great Britain, 1885-1986," Journal of Monetary Economics, Elsevier, vol. 27(2), pages 191-212, April.
  50. Kenneth Rogoff, 1996. "The Purchasing Power Parity Puzzle," Journal of Economic Literature, American Economic Association, vol. 34(2), pages 647-668, June.
  51. Kim, Yoonbai, 2000. "Causes of capital flows in developing countries," Journal of International Money and Finance, Elsevier, vol. 19(2), pages 235-253, April.
  52. John T. Harvey, 1996. "Orthodox Approaches to Exchange Rate Determination: A Survey," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 18(4), pages 567-583, July.
  53. Rudi Dornbusch & Stanley Fischer, 2003. "International Financial Crises," CESifo Working Paper Series 926, CESifo Group Munich.
  54. Bela Balassa, 1964. "The Purchasing-Power Parity Doctrine: A Reappraisal," Journal of Political Economy, University of Chicago Press, vol. 72, pages 584-584.
  55. Karras, Georgios, 1999. "Openness and the effects of monetary policy," Journal of International Money and Finance, Elsevier, vol. 18(1), pages 13-26, January.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:cfi:fseres:cf125. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.