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A model of the Australia-US exchange rate

Sullivan, Steven and Boulter, Terry 2005, A model of the Australia-US exchange rate, in Markets, efficiency and regulation : our on-going challenge : 10th AIBF Banking and Finance Conference, Australian Institute of Banking & Finance, Melbourne, Vic., pp. 1-48.

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Title A model of the Australia-US exchange rate
Author(s) Sullivan, Steven
Boulter, Terry
Conference name Australasian Institute of Banking and Finance. Conference (10th : 2005 : Melbourne, Vic.)
Conference location Melbourne, Vic.
Conference dates 29-30 Sep. 2005
Title of proceedings Markets, efficiency and regulation : our on-going challenge : 10th AIBF Banking and Finance Conference
Editor(s) McLoughlin, Frieda
Publication date 2005
Conference series Australasian Institute of Banking and Finance Conference
Start page 1
End page 48
Total pages 48 p.
Publisher Australian Institute of Banking & Finance
Place of publication Melbourne, Vic.
Summary This paper develops a model of exchange rate determination within an error correction framework. The intention is to identify both long and short term determinants that can be used to forecast the AUD/US exchange rate. The paper identifies a set of significant variables associated with exchange rate movements over a twenty year period from 1984 to 2004. Specifically, the overnight interest rate differential, Australia's foreign trade-weighted exposure to commodity prices as well as exchange rate volatility are variables identified that are able explain movements in the AUDIUS dollar relationship. An error correction model is subsequently constructed that incorporates an equilibrium correction term, a short-term interest rate differential variable, a commodity price variable and a proxy for exchange rate volatility. The model is then used to forecast out of sample and is found to dominate a naIve random walk model based on three different metrics.
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ISBN 0959584420
9780959584424
Language eng
Field of Research 140303 Economic Models and Forecasting
HERDC Research category E1 Full written paper - refereed
Copyright notice ©2005, Australian Institute of Banking & Finance
Persistent URL http://hdl.handle.net/10536/DRO/DU:30009728

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Every reasonable effort has been made to ensure that permission has been obtained for items included in DRO. If you believe that your rights have been infringed by this repository, please contact drosupport@deakin.edu.au.