Financial integration: some evidence from Australia

Abstract

This paper seeks to examine the efficiency of the Australian foreign exchange market by using the methods of seemingly unrelated regressions (SUR) and spectral analysis. Uncovered interest rate differentials for five countries, namely the U.S., U.K., Japan, Malaysia and Singapore, are examined with Australia as the ‘home’ country. The data covers the post-float period, 1984.1–2000.12. The empirical results indicate that the restrictions of the hypothesis of uncovered interest parity are rejected. The spectral densities for the interest rate differentials suggest the absence of systematic cyclical fluctuations.