The paper is motivated by two empirical results. Australia’s terms of trade exhibit temporary fluctuations around a slowly declining trend, and movements in Australia’s real exchange rate tend to follow those in the terms of trade. Together these results imply predictability in Australia’s...

In recent years, there has been much re-assessment and re-evaluation by academic economists of the Efficient Markets Hypothesis. The traditional view, stressing the ability of speculative markets to keep asset prices in line with economic fundamentals, has been challenged by an approach more...