Export Price Volatility in Australia: An Application of ARCH and GARCH Models

Abbas Valadkhani, Allan P. Layton and Neil D. Karunaratne
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Allan P. Layton: Queensland University of Technology
Neil D. Karunaratne: University of Queensland

Economics Working Papers from School of Economics, University of Wollongong, NSW, Australia

Abstract: Australia has one of the more volatile set of export prices among OECD countries. This paper examines the extent to which Australia's export prices relate to the world prices using quarterly time-series data spanning the period 1969q4-2002q3. The empirical results based on dynamic least squares method show that Australia's export prices are cointegrated with the global export prices. A short-term dynamic ARCH-in Mean model, which captures the time varying nature of price volatility, has been used to explain the growth rate of Australia's export prices. It is found that (a) changes in Australia's export prices are highly associated with systematic changes in world export prices; (b) the diversification of Australia's export base has contributed to a significant reduction in the volatility of export prices during the study period; and (c) the time varying volatility has not undermined, in a significant manner, the growth rate of Australia's export prices.

Keywords: Export price volatility; Australia; ARCH models; GARCH models (search for similar items in EconPapers)
Pages: 15 pages
Date: 2005
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Citations: View citations in EconPapers (1)

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