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Is there any relationship between exchange rate and investment ? evidence from Australia

Author

Listed:
  • Daud, Ariff
  • Masih, Mansur

Abstract

This paper makes an attempt to test the possible relationship between exchange rate and investment. Australia is used as a case study. It is interesting to discover the relationship, as the policy makers can use the exchange rate to encourage or discourage investment. The methods used are the standard time-series techniques. The findings based on variance decompositions analysis tend to indicate that investment is driven by exchange rate and followed by inflation rate. The findings are plausible and have strong policy implications for commodity-producing countries like Australia.

Suggested Citation

  • Daud, Ariff & Masih, Mansur, 2017. "Is there any relationship between exchange rate and investment ? evidence from Australia," MPRA Paper 110655, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:110655
    as

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    File URL: https://mpra.ub.uni-muenchen.de/110655/1/MPRA_paper_110655.pdf
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    References listed on IDEAS

    as
    1. Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, vol. 59(6), pages 1551-1580, November.
    2. Guay C. Lim, 2002. "Modelling the Interaction of Fundamental and Portfolio Exchange Rate Behaviour: An Application to Australia and the ASEAN3," Australian Economic Papers, Wiley Blackwell, vol. 41(4), pages 557-576, December.
    3. Cao, Guangxi & Xu, Longbing & Cao, Jie, 2012. "Multifractal detrended cross-correlations between the Chinese exchange market and stock market," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 391(20), pages 4855-4866.
    4. Anil Mishra, 2011. "Australia’s equity home bias and real exchange rate volatility," Review of Quantitative Finance and Accounting, Springer, vol. 37(2), pages 223-244, August.
    5. Syed Tehseen JAWAID & Anwar Ul HAQ, 2012. "Effects of interest rate, exchange rate and their volatilities on stock prices: evidence from banking industry of Pakistan," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania / Editura Economica, vol. 0(8(573)), pages 153-166, August.
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    More about this item

    Keywords

    exchange rate; investment; inflation; Australia;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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