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Sources of Exchange Rate and Price Level Fluctuations in Two Commodity Exporting Countries: Australia and New Zealand

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  • Fisher, Lance A
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    Abstract

    Dynamic interactions between the exchange rate, domestic price level, and terms of trade of Australia and New Zealand, relative to the United States, are evaluated. Under the restriction that a nominal shock has no long-run effect on the relative terms of trade, real shocks dominate nominal shocks in accounting for fluctuations in real and nominal exchange rates. For Australia, real shocks that improve the relative terms of trade have a negligible effect on the domestic price level relative to that of the United States but, for New Zealand, there is a significant permanent increase in the relative domestic price level. Copyright 1996 by The Economic Society of Australia.

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    Bibliographic Info

    Article provided by The Economic Society of Australia in its journal The Economic Record.

    Volume (Year): 72 (1996)
    Issue (Month): 219 (December)
    Pages: 345-58

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    Handle: RePEc:bla:ecorec:v:72:y:1996:i:219:p:345-58

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    Cited by:
    1. Leu, Shawn Chen-Yu, 2011. "A New Keynesian SVAR model of the Australian economy," Economic Modelling, Elsevier, vol. 28(1-2), pages 157-168, January.
    2. Frank Smets, 1997. "Financial-asset Prices and Monetary Policy: Theory and Evidence," RBA Annual Conference Volume, in: Philip Lowe (ed.), Monetary Policy and Inflation Targeting Reserve Bank of Australia.
    3. Robert Buckle & Kunhong Kim & Julie Tam, 2002. "A structural var approach to estimating budget balance targets," New Zealand Economic Papers, Taylor & Francis Journals, vol. 36(2), pages 149-175.
    4. Valadkhani, Abbas & Layton, Allan P. & Karunaratne, Neil D., 2005. "Export Price Volatility in Australia: An Application of ARCH and GARCH Models," Economics Working Papers wp05-11, School of Economics, University of Wollongong, NSW, Australia.
    5. Kenneth W. Clements & Renee Fry, 2006. "Commodity Currencies And Currency Commodities," CAMA Working Papers 2006-19, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    6. Dungey, Mardi & Pagan, Adrian, 2000. "A Structural VAR Model of the Australian Economy," The Economic Record, The Economic Society of Australia, vol. 76(235), pages 321-42, December.
    7. Prof. Neil D. Karunaratne, 2002. "Microeconomic Shocks, Depreciation and Inflation: an Australian Perspective," Discussion Papers Series 298, School of Economics, University of Queensland, Australia.
    8. Shawn Chen-Yu Leu, 2006. "A New Keynesian Perspective of Monetary Policy in Australia," Working Papers 2006.01, School of Economics, La Trobe University.
    9. Dimitris Hatzinikolaou & Metodey Polasek, 2005. "The commodity-currency view of the Australian dollar: A multivariate cointegration approach," Journal of Applied Economics, Universidad del CEMA, vol. 0, pages 81-99, May.
    10. Leu, Shawn, 2004. "A New Keynesian Perspective of Monetary Policy Implementation in Austr alia," Working Papers 1, University of Sydney, School of Economics.
    11. Haluk Erlat & Guzin Erlat, 1998. "Permanent and transitory shocks on real and nominal exchange rates in Turkey during the post-1980 period," Atlantic Economic Journal, International Atlantic Economic Society, vol. 26(4), pages 379-396, December.
    12. A.F.M. Kamrul Hassan & Ruhul A. Salim, 2011. "Is there any Link Between Commodity Price and Monetary Policy? Evidence from Australia," Economic Analysis and Policy (EAP), Queensland University of Technology (QUT), School of Economics and Finance, vol. 41(3), pages 205-216, December.
    13. Swift, Robyn, 2004. "Exchange rate changes and endogenous terms of trade effects in a small open economy," Journal of Macroeconomics, Elsevier, vol. 26(4), pages 737-745, December.

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