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A Weekly Model of the Floating Australian Dollar

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  • Jeffrey R. Sheen

    (University of Essex)

Abstract

In the first two years of its float, the Australian-U.S. dollar exchange rate has substantially depreciated and oscillated. This paper tests to see whether this exchange rate has, at least, followed a random walk with drift. Having established this benchmark, structural monetary models are constructed to see whether one can obtain better within-sample and/or out-of-sample results. Rational forecasts of exogenous variables are obtained using Muth’s (1961) decomposition; interpolation is used to obtain weekly forecasts when the observation period is greater. It appears that the random walk can be beaten.

Suggested Citation

  • Jeffrey R. Sheen, 1986. "A Weekly Model of the Floating Australian Dollar," RBA Research Discussion Papers rdp8612, Reserve Bank of Australia.
    • Handle: RePEc:rba:rbardp:rdp8612
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    File URL: https://www.rba.gov.au/publications/rdp/1986/8612.html
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