Based on a simultaneous-equation model consisting of aggregate demand and short-run aggregate supply, this paper estimates a reducedform equation specifying that the equilibrium real GDP is a function of the real effective exchange rate, the government deficit as a percent of GDP, the real interest rate, foreign income, labor productivity, the real oil price, the expected inflation rate, and the interactive and intercept binary variables accounting for a potential change in the slope of the real effective exchange rate and shift in the intercept. Applying the exponential GARCH technique, it finds that aggregate output in Australia has a positive relationship with the real effective exchange rate during 2003.Q3 – 2013.Q2, the government deficit as a percent of GDP, U.S. real GDP, labor productivity and the real oil price and a negative relationship with the real effective exchange rate during 2013.Q3 – 2016.Q1, the real lending rate and the expected inflation rate. These results suggest that real appreciation was expansionary before 2013.Q3 whereas real depreciation was expansionary after 2013.Q2 and that more government deficit as a percent of GDP would be helpful to stimulate the economy. Hence, the impact of real appreciation or real depreciation on real GDP may change overtime. Keywords: Exchange Rates, Government Deficit, Interest Rates,