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Trend of Commodity Prices and Exchange Rate in Australian Economy: Time Varying Parameter Model Approach

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Abstract

Here we investigate the relationship between export commodity prices and AUD/USD exchange rate fluctuation using time varying parameter model. Using monthly data for over 30 years we found that exchange rate is determined by commodity prices and Australian base metal indices is highly correlated with country’s exchange rate. We have considered linear Gaussian state space model where common variance is treated as a stochastic time varying variable which gets considered for modeling economic time series.

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Acknowledgements

The authors would like to thank anonymous referee for suggestions to improve the earlier version.

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Correspondence to Debasish Roy.

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Roy, D., Bhar, R. Trend of Commodity Prices and Exchange Rate in Australian Economy: Time Varying Parameter Model Approach. Asia-Pac Financ Markets (2020). https://doi.org/10.1007/s10690-020-09301-9

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Keywords

  • Commodity indices
  • Exchange rate
  • Regression model
  • Time varying parameter

JEL Classification

  • F31
  • Q02