Advanced Search
MyIDEAS: Login

New Zealand's Exchange Rate Cycles: Evidence and Drivers

Contents:

Author Info

  • Gemma Mabin

    ()
    (The Treasury)

Registered author(s):

    Abstract

    This paper seeks to understand the extent of New Zealand’s exchange rate fluctuations compared to others, and what drives New Zealand’s exchange rate. New Zealand has only experienced a limited number of exchange rate cycles since the dollar was floated. On a trade-weighted basis this paper finds that New Zealand has large exchange rate cycles, but that some other relevant economies (e.g. Australia, the Euro Area, Japan and South Korea) also have similarly large cycles. By comparing the short-term (i.e. month-to-month) volatility of New Zealand’s exchange rate to other economies, on a trade-weighted basis New Zealand’s exchange rate fluctuates greatly. New Zealand, Australia and Japan face the highest levels of short-term volatility out of the economies included in the analysis. Factors that affect the expected relative return on New Zealand dollar assets are found to explain a significant part of exchange rate cycles. These include interest rate differentials between New Zealand and other countries, relative growth performance and attitudes to risk. More fundamental drivers such as export commodity prices and the terms of trade, and productivity growth also drive New Zealand dollar returns. The main driver of the exchange rate changes over time in response to developments in the domestic and global economy.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://www.treasury.govt.nz/publications/research-policy/wp/2010/10-10/twp10-10.pdf
    Download Restriction: no

    Bibliographic Info

    Paper provided by New Zealand Treasury in its series Treasury Working Paper Series with number 10/10.

    as in new window
    Length: 32
    Date of creation: Dec 2010
    Date of revision:
    Handle: RePEc:nzt:nztwps:10/10

    Contact details of provider:
    Postal: New Zealand Treasury, PO Box 3724, Wellington, New Zealand
    Phone: +64-4-472 2733
    Fax: +64-4-473 0982
    Web page: http://www.treasury.govt.nz
    More information through EDIRC

    Related research

    Keywords: Exchange rate; short-term volatility; medium-term cycles; long-run equilibrium;

    Find related papers by JEL classification:

    References

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
    as in new window
    1. William R. Cline & John Williamson, 2010. "Currency Wars?," Policy Briefs PB10-26, Peterson Institute for International Economics.
    2. 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.
    3. Harding, Don & Pagan, Adrian, 2002. "Dissecting the cycle: a methodological investigation," Journal of Monetary Economics, Elsevier, vol. 49(2), pages 365-381, March.
    4. Rebecca L Driver & Peter F Westaway, 2005. "Concepts of equilibrium exchange rates," Bank of England working papers 248, Bank of England.
    Full references (including those not matched with items on IDEAS)

    Citations

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:nzt:nztwps:10/10. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Web and Publishing Team, The Treasury).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.