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The Impact of Real and Nominal Shocks on Australian Real Exchange Rates

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  • Philip Lowe

    (Reserve Bank of Australia)

Abstract

This paper examines the behaviour of the real Australian dollar exchange rates against the US dollar and Japanese yen over the last two decades. It is argued that country differences in relative productivity growth in the traded goods sectors can help explain movements in the real rates. Using time series techniques together with restrictions derived from standard models of real exchange rate determination, the importance of real and nominal shocks to the real exchange rates are analysed. Both types of shocks are found to be important in explaining short-run deviations from Purchasing Power Parity, with the nominal shocks being more important for the rate against the US dollar than the rate against the yen.

Suggested Citation

  • Philip Lowe, 1992. "The Impact of Real and Nominal Shocks on Australian Real Exchange Rates," RBA Research Discussion Papers rdp9201, Reserve Bank of Australia.
    • Handle: RePEc:rba:rbardp:rdp9201
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    File URL: https://www.rba.gov.au/publications/rdp/1992/pdf/rdp9201.pdf
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    Cited by:

    1. Paul D. McNelis, 1993. "The Response of Australian Stock, Foreign Exchange and Bond Markets to Foreign Asset Returns and Volatilities," RBA Research Discussion Papers rdp9301, Reserve Bank of Australia.
    2. Hwa-Taek Lee & Gawon Yoon, 2013. "Does purchasing power parity hold sometimes? Regime switching in real exchange rates," Applied Economics, Taylor & Francis Journals, vol. 45(16), pages 2279-2294, June.
    3. 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 321-342, December.
    4. Meredith Beechey & Pär Österholm, 2008. "A Bayesian Vector Autoregressive Model with Informative Steady‐state Priors for the Australian Economy," The Economic Record, The Economic Society of Australia, vol. 84(267), pages 449-465, December.
    5. Jacqueline Dwyer & Philip Lowe, 1993. "Alternative Concepts of the Real Exchange Rate: A Reconciliation," RBA Research Discussion Papers rdp9309, Reserve Bank of Australia.
    6. Mardi Dungey & Adrian Pagan, 2000. "A Structural VAR Model of the Australian Economy," The Economic Record, The Economic Society of Australia, vol. 76(235), pages 321-342, December.

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