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A Perspective on Modelling the Australian Real Trade Weighted Index since the Float

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  • Shakila Aruman
  • Mardi Dungey

Abstract

Since the deregulation of the Australian dollar market in December 1983, considerable effort has been devoted by the central bank to understanding movements in the value of the currency. As the Reserve Bank of Australia (RBA) has a pivotal role to play in currency markets, attention has been focussed on the modelling techniques used by the Bank's researchers in this process. This paper examines the ancestral development of the current model of the Australian Trade Weighted Index (rtwi) used at the RBA, as specified in Beechey et al. (2000). Estimates and forecasting evaluations of the various models imply that only the relationships between the rtwi, the terms of trade and interest differentials hold consistently, providing the empirical foundation for the current RBA model.

Suggested Citation

  • Shakila Aruman & Mardi Dungey, 2003. "A Perspective on Modelling the Australian Real Trade Weighted Index since the Float," Australian Economic Papers, Wiley Blackwell, vol. 42(1), pages 56-76, March.
    • Handle: RePEc:bla:ausecp:v:42:y:2003:i:1:p:56-76
    DOI: 10.1111/1467-8454.00186
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    References listed on IDEAS

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    1. Philip R. Lane & Gian Maria Milesi-Ferretti, 2004. "The Transfer Problem Revisited: Net Foreign Assets and Real Exchange Rates," The Review of Economics and Statistics, MIT Press, vol. 86(4), pages 841-857, November.
    2. Alison Tarditi, 1996. "Modelling the Australian Exchange Rate, Long Bond Yield and Inflationary Expectations," RBA Research Discussion Papers rdp9608, Reserve Bank of Australia.
    3. Adrian Blundell-Wignall, 1993. "Introduction to The Exchange Rate, International Trade and the Balance of Payments," RBA Annual Conference Volume (Discontinued), in: Adrian Blundell-Wignall (ed.),The Exchange Rate, International Trade and the Balance of Payments, Reserve Bank of Australia.
    4. Wouter J. Den Haan & Andrew T. Levin, 1995. "Inferences from parametric and non-parametric covariance matrix estimation procedures," International Finance Discussion Papers 504, Board of Governors of the Federal Reserve System (U.S.).
    5. Eric J. Pentecost, 1993. "Exchange Rate Dynamics," Books, Edward Elgar Publishing, number 355.
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    Cited by:

    1. Stefan Reitz & Jan C. Rülke & Mark P. Taylor, 2011. "On the Nonlinear Influence of Reserve Bank of Australia Interventions on Exchange Rates," The Economic Record, The Economic Society of Australia, vol. 87(278), pages 465-479, September.
    2. Jean-Francois Hoarau & Ibrahim Ahamada & Alain Nurbel, 2007. "Multiple structural regimes in real exchange rate misalignment: the case of Australian dollar," Applied Economics Letters, Taylor & Francis Journals, vol. 15(2), pages 101-104.
    3. Satish Chand, 2001. "How misaligned is the Australian real exchange rate?," International and Development Economics Working Papers idec01-2, International and Development Economics.
    4. Chowdhury, Khorshed, 2012. "Modelling the dynamics, structural breaks and the determinants of the real exchange rate of Australia," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 22(2), pages 343-358.
    5. Khorshed Chowdhury, 2011. "Dynamics, Structural Breaks and the Determinants of the Real Exchange Rate of Australia," Economics Working Papers wp11-11, School of Economics, University of Wollongong, NSW, Australia.

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