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Exchange rate assessments for Australia and New Zealand

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Author Info

  • Hali Edison
  • Francis Vitek

Abstract

Purpose – The purpose of this paper is to assess the level of the real effective exchange rate in Australia and New Zealand. Design/methodology/approach – The paper describes three empirical models commonly used to conduct exchange rate assessments and applies them to data for Australia and New Zealand. Findings – The baseline results using data and medium-term projections, available as of October 2008, suggest that the Australian and New Zealand dollar were broadly in line with fundamentals, but with a wide variation across models. A battery of sensitivity tests illustrates that altering the underlying assumptions can yield substantially different assessments. The results are particularly sensitive to the choice of assessment horizon, the set of economies included in the sample, medium-term forecasts, and the exchange rate reference period. Originality/value – The paper provides an assessment of the exchange rates in Australia and New Zealand.

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Bibliographic Info

Article provided by Emerald Group Publishing in its journal Journal of Financial Economic Policy.

Volume (Year): 1 (2009)
Issue (Month): 2 (May)
Pages: 155-176

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Handle: RePEc:eme:jfeppp:v:1:y:2009:i:2:p:155-176

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Related research

Keywords: Australia; Exchange rates; Macroeconomics; New Zealand;

References

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  1. Nikola Dvornak & Marion Kohler & Gordon Menzies, 2003. "Australia’s Medium-run Exchange Rate: A Macroeconomic Balance Approach," RBA Research Discussion Papers rdp2003-03, Reserve Bank of Australia.
  2. Maurice Obstfeld & Kenneth Rogoff, 1994. "The Intertemporal Approach to the Current Account," NBER Working Papers 4893, National Bureau of Economic Research, Inc.
  3. Anne-Marie Brook & David Hargreaves, 2000. "A macroeconomic balance measure of New Zealand's equilibrium exchange rate," Reserve Bank of New Zealand Discussion Paper Series DP2000/09, Reserve Bank of New Zealand.
  4. Froot, Kenneth A. & Rogoff, Kenneth, 1995. "Perspectives on PPP and long-run real exchange rates," Handbook of International Economics, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 32, pages 1647-1688 Elsevier.
  5. Bela Balassa, 1964. "The Purchasing-Power Parity Doctrine: A Reappraisal," Journal of Political Economy, University of Chicago Press, vol. 72, pages 584.
  6. Kenneth Rogoff, 1996. "The Purchasing Power Parity Puzzle," Journal of Economic Literature, American Economic Association, vol. 34(2), pages 647-668, June.
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