AJM - Abstracts

Volume 30 Number 1 June 2005

Pricing to Market and a Volatile AUD.

Mark Crosby

Abstract

There are two features of exchange rate behaviour that are difficult to explain with conventional theoretical explanations. Firstly, exchange rates are very volatile relative to fundamentals, and secondly, departures from "fair value" are very persistent. In this paper the implications of pricing to market models for exchange rate behaviour are examined. It is found that these models do better at explaining exchange rate behaviour than traditional models, though it would seem that there is still some way to go before we have a full understanding of high to medium frequency fluctuations in the exchange rate.

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Keywords

EXCHANGE RATES; VOLATILITY; PRICING-TO-MARKET.

Contact Details
Mark Crosby
Melbourne Business School,
200 Leicester Street, Carlton, Vic, 3053.
E-mail: m.crosby@mbs.edu

The author wishes to thank conference participants at the Exchange Rate Workshop and the Macro Workshop in Wellington, NZ, to seminar participants at the University of New South Wales and to an anonymous referee for many helpful comments and suggestions. All errors and omissions remain my own.