Rudiger Dornbusch (Dornbush, 1976) extended Mundell’s framework to a dynamic environment and showed that forward-looking behaviour, together with price stickiness, could generate exchange rate overshooting.14 In the real world, there are a host of other reasons for exchange rates and other asset prices to overreact, including “animal spirits” and excessive exuberance.
About 1.5 million tonnes of iron ore, valued at about $ million at current prices, leave those shores each day in ships about 250 times the size of Cook’s Endeavour. A combination of those endowments with a willingness to accept international capital, including very prominently from the UK, has given Australians the opportunity to grow our economy quickly.