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The determinants of australian exchange rate: a time series analysis

Author

Listed:
  • Atif, Syed Muhammad
  • Sauytbekova, Moldir
  • Macdonald, James

Abstract

The paper analyzes Australian exchange rate and its determinants by providing an insight into the economic and non-economic factors. By drawing a comparison between quarterly and annual data over the period of 1975 to 2012, it is suggested that Australia’s trade components and macroeconomic indicators such as output and liquidity relative to the US, play a significant role in determination of its exchange rates. However, interest rate and inflation appear insignificant in this relationship. The study also emphasizes on the pertinence of unobservable effects such as political events and external shocks in influencing the exchange rate. Engle-Granger Cointegration test exhibits a long run relationship between exchange rate and its determinants, and corroborates the substantial role of macroeconomic indicators in diminishing the uncertainty in foreign exchange market.

Suggested Citation

  • Atif, Syed Muhammad & Sauytbekova, Moldir & Macdonald, James, 2012. "The determinants of australian exchange rate: a time series analysis," MPRA Paper 42309, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:42309
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    References listed on IDEAS

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    1. Camarero, Mariam & Tamarit, Cecilio, 2002. "A panel cointegration approach to the estimation of the peseta real exchange rate," Journal of Macroeconomics, Elsevier, vol. 24(3), pages 371-393, September.
    2. Baillie, Richard T. & Selover, David D., 1987. "Cointegration and models of exchange rate determination," International Journal of Forecasting, Elsevier, vol. 3(1), pages 43-51.
    3. Antonia LÃPEZ VILLAVICENCIO & Josep Lluís RAYMOND BARA, 2008. "Short-Run And Long-Run Determinants Of The Real Exchange Rate In Mexico," The Developing Economies, Institute of Developing Economies, vol. 46(1), pages 52-74.
    4. Kempa, Bernd & Wilde, Wolfram, 2011. "Sources of exchange rate fluctuations with Taylor rule fundamentals," Economic Modelling, Elsevier, vol. 28(6), pages 2622-2627.
    5. Lee Chin & M. Azali & K. G. Matthews, 2007. "The monetary approach to exchange rate determination for Malaysia," Applied Financial Economics Letters, Taylor and Francis Journals, vol. 3(2), pages 91-94.
    6. Grubacic, Sanja, 2002. "Exchange Rate Adjustment in Partially Liberalized Economy," Economic Change and Restructuring, Springer, vol. 35(3), pages 253-270.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Exchange Rate; Backward Elimination;

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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