Modelling the long-run real effective exchange rate of the New Zealand Dollar
AbstractThe usefulness of the concept of an equilibrium exchange rate has been brought into sharp focus by the dramatic depreciation of the euro since its inception in 1999. Does this movement reflect a movement of the actual exchange rate relative to its equilibrium or has the equilibrium shifted relative to the perception of where the euro was in 1999? Similar kinds of questions have been asked about the behaviour of the New Zealand dollar since the latter part of 1999. To answer these kinds of questions it is necessary to have some measure of an equilibrium exchange rate and there are a plethora of alternative approaches available in the literature. In this paper we use the behavioural equilibrium exchange rate (BEER) approach of Clark and MacDonald (1999) to produce long-run equilibrium exchange rates for the effective real exchange rates of the New Zealand dollar. We demonstrate that a well founded measure of the equilibrium value of the dollar may be recovered from a relatively small set of fundamental variables and that this can be used to produce an assessment of the dollar in terms of periods of misalignment.
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Bibliographic InfoPaper provided by Reserve Bank of New Zealand in its series Reserve Bank of New Zealand Discussion Paper Series with number DP2002/02.
Date of creation: Oct 2001
Date of revision:
Other versions of this item:
- Ronald MacDonald, 2002. "Modelling the Long-run Real Effective Exchange Rate of the New Zealand Dollar," Australian Economic Papers, Wiley Blackwell, vol. 41(4), pages 519-537, December.
- F31 - International Economics - - International Finance - - - Foreign Exchange
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