Modelling the floating Australian dollar

Can the random walk be encompassed by a model using a permanent decomposition of money and output?

Jeffrey Sheen*

*Corresponding author for this work

Research output: Contribution to journalArticle

2 Citations (Scopus)

Abstract

This paper tests whether the Australian dollar has, at least, followed a random walk with drift in the first two years of its float. 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 (1960) decomposition; interpolation is used to obtain weekly forecasts when the observation period is greater. It appears that the random walk can be beaten.

Original languageEnglish
Pages (from-to)253-276
Number of pages24
JournalJournal of International Money and Finance
Volume8
Issue number2
DOIs
Publication statusPublished - 1989
Externally publishedYes

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