1984 1985 1985 1985 1986 1986 1986 1987 1989 1989 Dec Apr
$us
Figure 3.15: Real Exchange Rate
Pound
D a ta A p p e n d i x S e c t i o n 3 .2
T h ree m onth E u ro c u rre n cy r a t e s f o r U.K., Ja p an , and W est G erm any come fro m th e OECD F in a n cia l S t a ti s ti c s (v ario u s issu e s). The th re e m onth A u s tra lia n and U.S. T re a s u ry Bills a re fro m th e R eserve Bank of A u s tra lia (RBA) b u lle tin , and th e C anadian (th re e m onth) and Ita lia n (six m onth) r a t e s a re fro m th e OECD Main Economic In d ic a to rs.
The CPI fig u r e s a r e fro m th e OECD Main Econom ic In d ic a to rs. A u s tra lia only has q u a r te r ly C onsum er P ric e Index (CPI) fig u re s , co n seq u en tly m onthly in fla tio n r a t e s a re assum ed to be th e sam e as th e q u a r te r ly r a t e f o r each m onth in t h a t q u a r te r . In a d d itio n , a c o rre c tio n is m ade in th e A u s tra lia n CPI fig u re s to ta k e ac co u n t of th e ‘M edicare e f f e c t ’ w hich in c re a s e s th e in fla tio n fig u re fro m th e M arch q u a r t e r 1984 to th e M arch q u a r te r 1985.
S e c t i o n 3.3
The e x p e c ta tio n d a ta used f o r A u s tra lia com es fro m v a rio u s Monday issu e s o f The A u s tra lia n over th e perio d 8 /3 /8 5 - 1 8 /9 /8 7 . The e x p e c ta tio n s w e re o b tain e d on th e F rid a y a fte rn o o n (p rio r to th e Monday) by telep h o n e b etw een 3 p.m . and 5 p.m . fro m six te e n eco n o m ists. T h ere w e re o rig in a lly only fo u rte e n eco n o m ists a lth o u g h th is w as soon e x te n d e d to six te e n . Hunt (1987) who o rg a n ise d th e su rv ey sa y s t h a t ev ery a tte m p t w as m ade to c o n ta c t th e sam e in d iv id u als each week. The s ix te e n com panies in th e su rv ey w ere: ANZ Bank, B .N .P., The A u s tra lia n Bank, ’ B arclay s, B.A., B .T ., C itic o rp , Com m onw ealth Bank, E ld e rs, Lloyds, M acquarie Bank, N a tio n a l A u s tra lia Bank, R u ra l and In d u stry Bank, S c h rö d e rs, S ta te Bank o f N.S.W. and W estpac. They w e re ask ed to p re d ic t th e sp o t r a t e a t 3 p.m . th e
fo llo w in g F rid a y and th e F rid a y in f o u r w eeks tim e. Quoted in The A u s tra lia n th e fo llow in g Monday a r e th e a v e ra g e , u p p e r, and low er v alu es of th e s ix te e n re sp o n se s f o r th e one and f our week ah ead f o r e c a s ts . Over th e e n tir e p e rio d of one h u nd red and t h i r t y - t h r e e w eeks, fiv e o b se rv a tio n s a re m issing due to Bank H olidays fa llin g e ith e r on th e Monday o r th e F rid a y and th e s e o b s e rv a tio n s a re
38 ex clud ed over th e e n tir e a n a ly sis.
The sp o t r a t e is th e F rid a y close sp o t r a t e in th e w h o lesale m a rk e t, and th e F rid a y one m onth f o rw a r d r a t e is an a v e ra g e of th e buy and se ll r a t e s (quoted in th e A u s tra lia n F in a n cia l Review on th e fo llo w in g Monday).
The in fla tio n r a t e in A u s tra lia and th e U.S. use CPI f ig u r e s w hich had been p u blish ed a t th e tim e th e e x p e c ta tio n s w e re fo rm ed . The A u s tra lia n CPI fig u r e s w e re alw ay s published by th e end of th e m onth im m ed iately fo llo w in g th e end of each q u a r te r . F or each F rid a y
A A A
in m onth i A u s tra lia n in fla tio n is c a lc u la te d a s n = P / P - 1, 1 1 - 4 1-16 A
w h ere P is th e CPI in m onth i. Account is ta k e n of th e M edicare l
e f f e c t. F o r th e U.S. th e in fla tio n fig u re , tiUS = Pus / P us - 1, & 1 i - 3 1-15
w h ere PUS is U.S. CPI. i
38
In th is a n a ly s is th e a v e ra g e f o r e c a s t value f o r one and f o u r w eeks ah e ad is used. The u se o f a m ean value m ay be re g a rd e d a s a p roblem b e cau se a ll f o r e c a s ts a r e equally w eig h ted u sin g a sam ple m ean co m p ared to , f o r ex am p le, a m edian. T his w ould b ia s th e f o r e c a s t to w a rd s th e e x tre m e p re d ic tio n . H ow ever, th is p ro b lem h a s n o t been ev id en t in o th e r r e s e a r c h w h ere th e m ean f o r e c a s t h a s been fo u nd to be b e tt e r th a n th e m edian, Lowe and T re v o r (1986). It h a s also been su g g e ste d t h a t in d iv id u als m ay m is re p o rt th e i r exch an g e r a t e e x p e c ta tio n s in o r d e r t h a t th ey can m ake g a in s f ro m th e ir in fo rm a tio n . T h e re a r e tw o r e la te d o b je c tio n s to th is : f ir s t l y , it is n o t obvious w h a t c o n s titu te s p riv a te in f o rm a tio n in d e te rm in in g ex chang e r a t e m ovem ents, and fro m w h e re th is in fo rm a tio n w ould o rig in a te . Secondly, it is very r a r e f o r fo re ig n ex ch ang e d e a le rs to ta k e open p o sitio n s in th e fo re ig n ex change m a rk e t f o r a s long a s 1 day and th is c o v ers one and fo u r w eek p erio d s.
S e c t i o n 3 .4
T his se c tio n u ses th e e x p e c ta tio n s d a ta , s p o t r a t e and fo rw a r d r a t e fro m S ectio n 3 .3 , as w ell a s D a ta s e ts A and B.
D a t a s e t A: W e e k ly (F r id a y ) E x c h a n g e R a te s 5 / 1 / 7 9 - 2 1 / 4 / 8 9
The sp o t r a t e , one m onth f o rw a r d r a t e , and th r e e m onth fo rw a r d r a t e f o r th e $A /$U S and th e A u s tra lia n TWI a r e fro m I.P. S h arp A sso c ia te s "A u stra lia n F in a n cia l M arket D a ta Base". The f i r s t th re e of th e s e s e rie s a re fro m th e Com m onw ealth Bank o f A u s tra lia , and a re a v e ra g e buy and se ll r a t e s a t th e close o f tr a d e on each F rid a y . The TWI is fro m th e R eserve Bank of A u s tra lia (RBA) a t 4 p.m . The sp o t r a t e s $US/Y, $US/DM, $ U S /£ , $U S /$C a re fro m I.P. S h a rp A sso ciates "C u rren cy E xchange R a te s D ata Base", and a r e noon buying p ric e in $US in New York. T hese d a ta a r e fro m th e F e d e ra l R eserve System , N.Y. Bank.
D a t a s e t B: D a ily E x c h a n g e R a te s 1 / 1 / 8 6 - 1 1 / 4 / 8 9
R a te s a r e th e daily r e p r e s e n ta tiv e r a t e s fro m th e R eserve Bank o f A u s tra lia f o r $U S/$A , Y/$A, £ /$ A , DM/$A, and TWI.
S e c t i o n 3 .5
D a ta s e ts A and B a r e b o th used in c a lc u la tin g th e skew ness m e a su re s.
S e c t i o n 3 .6
D a ta s e t A is used to c a lc u la te th e r is k prem ium m e a su re s. The p ric e d a ta come fro m m onthly U.S. CPI d a ta fro m th e OECD Main Econom ic In d ic a to rs (v ario u s issu e s). All F rid a y s in any given m onth a r e a ssig n e d th e p ric e in dex f o r t h a t m onth.
S e c t i o n 3.7
The q u a r te r ly p ric e d a ta over th e p e rio d 1970:1 to 1988.4 a re CPI s e rie s fro m th e OECD Main Econom ic In d ic a to rs (v ario u s issu es) and th e sp o t r a t e s fro m th e RBA b u lle tin (v ario u s issu e s). The th re e m onth i n te r e s t r a t e d a ta is also fro m th e RBA b u lle tin .
F o r th e m o n e ta ry m odels th e d a ta a re q u a r te r ly over th e p erio d 1970.1 to 1988.4. The m o n e ta ry v a ria b le is Ml, th e c u r r e n t a cco u n t and th r e e m onth T re a s u ry Bills (both A u s tra lia n and U .S.) a re o b ta in e d fro m th e RBA b u lle tin f o r A u s tra lia . U.S. Ml, and th e c u r r e n t ac co u n t f ig u r e s a r e fro m th e OECD Main Econom ic In d ic a to rs . R eal GDP f o r A u s tra lia and th e U.S. is fro m th e OECD q u a r te r ly n a tio n a l a c co u n ts s e rie s . All th e d a ta , e x c e p t th e in te r e s t r a t e d a ta is s e a so n a lly a d ju s te d .
A p p e n d i x 3 . A: T a x a n d R e t u r n s A v a i l a b l e i n A u s t r a l i a
T his ap p en d ix d e a ls b rie fly w ith th e issu e o f t a x on A u stra lia n a s s e ts . The a r b itr a g e co n d itio n s given by e q u a tio n (3.1) a re valid f o r a r e p r e s e n ta tiv e U.S. in v e sto r p rovided th e t a x t r e a tm e n t is th e sam e f o r th e incom e e a rn e d on U.S. nom inal a s s e ts a s it is f o r incom e e a rn e d on A u s tra lia n nom inal a s s e ts . In g e n e ra l, th e incom e e a rn e d on A u s tra lia n nom inal a s s e ts c o n s is ts of b oth i n te r e s t and c a p ita l g a in /lo s s . The t a x t r e a tm e n t o f c a p ita l g ain is th e sam e as nom inal incom e, b u t a m axim um of $US 3 ,0 0 0 p e r annum c a p ita l loss can be w r itte n o f f a g a in s t o th e r incom e f o r U.S. ta x - p a y e r s . F or la rg e in v e s to rs , th is may be a s ig n ific a n t d is to rtio n . H ow ever, in a d iv e rs ifie d p o rtfo lio w hich in cludes nom inal a s s e ts fro m se v e ra l c o u n trie s , a c a p ita l lo ss on holdings in one c u rre n c y can be o f f s e t a g a in s t c a p ita l g ain on holding in o th e r c u rre n c ie s . T his should