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RBA Glossary definition for exchange rates

exchange rates – The price of one currency expressed in terms of another currency. Any exchange rate can be quoted two ways, e.g. Australian dollars per US dollar (USD/AUD) or US dollars per Australian dollar (AUD/USD). The convention for the Australian dollar is that it is quoted as the foreign currency price of the Australian dollar. This is sometimes referred to as the 'Indirect' method of quoting.

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Appendix F: Real Exchange Rate Shocks are AR(1)

1 Jun 1993 RDP 9307
David W.R. Gruen and Marianne C. Gizycki
RDP 9307: Explaining Forward Discount Bias: Is it Anchoring? Appendix F: Real Exchange Rate Shocks are AR(1). ... Firstly, real exchange rate shocks are uncorrelated with the forward discount by assumption.
https://www.rba.gov.au/publications/rdp/1993/9307/appendix-f.html

A Model with Anchored and Rational Traders

1 Jun 1993 RDP 9307
David W.R. Gruen and Marianne C. Gizycki
Dornbusch assumes that demand depends on real income, the interest rate and the real exchange rate. ... m. and σ. e. , are derived from data on interest differentials and floating exchange rates.
https://www.rba.gov.au/publications/rdp/1993/9307/model-with-anchor.html

Introduction

1 Jun 1993 RDP 9307
David W.R. Gruen and Marianne C. Gizycki
bias of the forward discount as an estimate of the future exchange rate change. ... then the forward discount should be an unbiased estimate of the future exchange rate change.
https://www.rba.gov.au/publications/rdp/1993/9307/introduction.html

Empirical Results

1 Jun 1993 RDP 9307
David W.R. Gruen and Marianne C. Gizycki
Secondly, recall our observation that only a small advantage is imparted to those (rational) agents who understand the true relationship between interest rates and the exchange rate. ... a small advantage is imparted to those who understand the true
https://www.rba.gov.au/publications/rdp/1993/9307/empirical-results.html

Explaining Forward Discount Bias: Is it Anchoring?

1 Jun 1993 RDP 9307
David W.R. Gruen and Marianne C. Gizycki
Research Discussion Papers contain the results of economic research within the Reserve Bank
https://www.rba.gov.au/publications/rdp/1993/9307.html

References

1 Jun 1993 RDP 9307
David W.R. Gruen and Marianne C. Gizycki
Cumby, R. E. and M. Obstfeld (1984), ‘International Interest Rate and Price Level Linkages under Flexible Exchange Rates’, in J. ... Ito, T. (1990), ‘Foreign Exchange Rate Expectations: Micro Survey Data’,. American Economic Review. ,
https://www.rba.gov.au/publications/rdp/1993/9307/references.html

Explaining Forward Discount Bias: Is it Anchoring ?

1 Jun 1993 RDP 9307
David W. R. Gruen and Marianne C. Gizycki
https://www.rba.gov.au/publications/rdp/1993/9307/

Anchoring as an Explanation | RDP9307 Explaining Forward Discount Bias: Is it Anchoring?

1 Jun 1993 RDP 9307
David W.R. Gruen and Marianne C. Gizycki
Model Assumptions:. There are two open economies, domestic and foreign, with a market-determined exchange rate between them. ... Before the monetary expansion, goods prices and the nominal exchange rate are in long-run equilibrium.
https://www.rba.gov.au/publications/rdp/1993/9307/anchor-explanation.html

Conclusion

1 Jun 1993 RDP 9307
David W.R. Gruen and Marianne C. Gizycki
In the foreign exchange market, the forward rate fits very closely psychologists' definition of an anchor for exchange rate expectations. ... As we stress, compared to the range of possible exchange rate outcomes, being anchored to the forward rate
https://www.rba.gov.au/publications/rdp/1993/9307/conclusion.html

Appendix B: The Traders' Asset – Demand Functions

1 Jun 1993 RDP 9307
David W.R. Gruen and Marianne C. Gizycki
Since Δp. t1. « Δs. t1. it follows that. Finally, the variance of exchange rate changes is closely approximated by. , ... The variance of exchange rate changes is so large that second-order Taylor expansions should be used for all the S.
https://www.rba.gov.au/publications/rdp/1993/9307/appendix-b.html