IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Modelling the Australian Exchange Rate, Long Bond Yield and Inflationary Expectations

  • Alison Tarditi

    (Reserve Bank of Australia)

Registered author(s):

    More than two decades have passed since the initial relaxation of domestic interest rate controls in Australia and just over one decade since the float of the Australian dollar. Interest rates and exchange rates now constitute two of the most important channels through which macroeconomic policy can affect the broader economy. It is widely recognized that expectations play a critical role in these mechanisms, affecting both the timing and speed with which interest and exchange rates transmit shocks through to real activity and prices. Over the longer run, the influence of these two asset prices extends to the efficient allocation of capital and resources. This paper builds on previous work undertaken at the Reserve Bank and the OECD to develop single-equation, behavioural models of these two variables. Consideration is paid to the role of inflation expectations in affecting their behaviour. In particular, a model of ex ante real bond yields is estimated using a measure of forward-looking inflationary expectations which has been constructed by recourse to a Markov switching technique.

    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.rba.gov.au/publications/rdp/1996/pdf/rdp9608.pdf
    Download Restriction: no

    Paper provided by Reserve Bank of Australia in its series RBA Research Discussion Papers with number rdp9608.

    as
    in new window

    Length:
    Date of creation: Nov 1996
    Date of revision:
    Handle: RePEc:rba:rbardp:rdp9608
    Contact details of provider: Postal: GPO Box 3947, Sydney NSW 2001
    Phone: 61-2-9551-8111
    Fax: 61-2-9551-8000
    Web page: http://www.rba.gov.au/
    Email:


    More information through EDIRC

    Order Information: Web: http://www.rba.gov.au/forms/rdp-order-form/

    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. 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.
    2. Malcolm Edey & John Romalis, 1996. "Issues in Modelling Monetary Policy," RBA Research Discussion Papers rdp9604, Reserve Bank of Australia.
    3. Graham Elliott & Thomas J. Rothenberg & James H. Stock, 1992. "Efficient Tests for an Autoregressive Unit Root," NBER Technical Working Papers 0130, National Bureau of Economic Research, Inc.
    4. Malcolm L. Edey, 1990. "Operating Objectives for Monetary Policy," RBA Research Discussion Papers rdp9007, Reserve Bank of Australia.
    5. Steven A. Symansky & Peter B. Clark & Leonardo Bartolini & Tamim Bayoumi, 1994. "Exchange Rates and Economic Fundamentals; A Framework for Analysis," IMF Occasional Papers 115, International Monetary Fund.
    6. Adrian Orr & Malcolm Edey & Michael Kennedy, 1995. "The Determinants of Real Long-Term Interest Rates: 17 Country Pooled-Time-Series Evidence," OECD Economics Department Working Papers 155, OECD Publishing.
    7. John Simon, 1996. "A Markov-switching Model of Inflation in Australia," RBA Research Discussion Papers rdp9611, Reserve Bank of Australia.
    8. Martin Evans & Paul Wachtel, 1993. "Inflation regimes and the sources of inflation uncertainty," Proceedings, Federal Reserve Bank of Cleveland, pages 475-520.
    9. Murphy, C W, 1988. "Rational Expectations in Financial Markets and the Murphy Model," Australian Economic Papers, Wiley Blackwell, vol. 27(0), pages 61-88, Supplemen.
    10. Dwyer, Jacqueline & Kent, Christopher & Pease, Andrew, 1994. "Exchange Rate Pass-Through: Testing the Small Country Assumption for Australia," The Economic Record, The Economic Society of Australia, vol. 70(211), pages 408-23, December.
    11. Goodwin, Thomas H, 1993. "Business-Cycle Analysis with a Markov-Switching Model," Journal of Business & Economic Statistics, American Statistical Association, vol. 11(3), pages 331-39, July.
    12. Phylaktis, Kate & Kassimatis, Yiannis, 1994. "Does the real exchange rate follow a random walk? The Pacific Basin perspective," Journal of International Money and Finance, Elsevier, vol. 13(4), pages 476-495, August.
    13. David Gruen & Tro Kortian, 1996. "Why Does the Australian Dollar Move so Closely with the Terms of Trade?," RBA Research Discussion Papers rdp9601, Reserve Bank of Australia.
    14. Goodhart, Charles, 1988. "The Foreign Exchange Market: A Random Walk with a Dragging Anchor," Economica, London School of Economics and Political Science, vol. 55(220), pages 437-60, November.
    15. Hamilton, James D., 1990. "Analysis of time series subject to changes in regime," Journal of Econometrics, Elsevier, vol. 45(1-2), pages 39-70.
    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:rba:rbardp:rdp9608. 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: (Paula Drew)

    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.