Title: Sources of volatility in Australia's export prices: evidence from ARCH and GARCH modelling

Authors: Abbas Valadkhani, Allan P. Layton, Neil D. Karunaratne

Addresses: School of Economics and Information Systems, University of Wollongong, NSW 2522, Australia. ' School of Economics and Finance, Queensland University of Technology, Qld 4001, Australia. ' School of Economics, The University of Queensland, Qld 4072, 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: Australian economy; export prices; Autoregressive Conditional Heteros-in mean model; ARCH-in mean model; Australia; growth rate; Generalised Autoregressive Conditional Heteroskedasticity; GARCH model.

DOI: 10.1504/GBER.2005.008291

Global Business and Economics Review, 2005 Vol.7 No.4, pp.295 - 310

Published online: 30 Nov 2005 *

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