Modelling the dynamics, structural breaks and the determinants of the real exchange rate of Australia

► We estimate a general equilibrium model combining financial, goods and factor markets. ► We apply the Auto Regressive Distributed Lag method which is flexible and robust. ► RER appreciates due to terms of trade, government spending and foreign liabilities. ► RER depreciates due to interest rates differential, trade openness and technology. ► Apart from the terms of trade, our results are contrary to earlier results.