Currency preferences and the Australian dollar

Geoffrey Kingston () and Martin Melecky ()

International Finance from EconWPA

Abstract: We investigate the theory and empirics of currency substitution and currency complementarity. Analytical tractability is facilitated by focussing on a small currency. Data spanning 1985 to the turn of the century contain evidence of the Australian dollar’s substitution for the mark and complementarity with the yen, consistent with our theory that international variables will in general affect the demand for domestic money. Our theory also predicts third-currency effects, and the data reveal several of these. For example, rises in the US Federal Funds rate were associated with depreciations of the Australian dollar against the yen, controlling for the spread between interest rates in Australia and Japan.

Keywords: Atemporally non-separable preferences; Money demand; Cash in advance; Third-currency effects; Uncovered Interest Parity (search for similar items in EconPapers)
JEL-codes: E41 F31 F36 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac and nep-mon
Date: 2005-02-08
Note: Type of Document - pdf; pages: 40
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http://129.3.20.41/eps/if/papers/0502/0502006.pdf (application/pdf)

Related works:
Journal Article: Currency preferences and the Australian dollar (2007)
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Persistent link: http://EconPapers.repec.org/RePEc:wpa:wuwpif:0502006

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