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Prices, Exchange Rates and Export Competitiveness of New Zealand: an assessment using Divisia Indices

Author

Listed:
  • Chatterjee, Srikanta

    (Massey University, New Zealand)

  • Daly, Vince

    (Kingston University London)

  • Ghatak, Subrata

    (Kingston University London)

Abstract

This paper computes Divisia price and volume indices from quarterly data of New Zealand exchange rates and exports to explore the relationship between New Zealand’s domestic inflation and the changes in its exchange rates over the period 1983 – 93. This is a period when the New Zealand economy underwent major reforms with the initial aims of disinflation at home and improved competitiveness in world markets. This paper examines empirically the relationships between these two aims with the help of Divisia indices. It examines, specifically, the international competitiveness of New Zealand’s four major export items in five major markets. Divisia indices, their variances, covariances and correlations, are analysed to check whether and to what extent the competitiveness of the selected exports were affected in the markets in question as a result of the domestic price and exchange rate movements. The findings throw some interesting light on the relationships being investigated.

Suggested Citation

  • Chatterjee, Srikanta & Daly, Vince & Ghatak, Subrata, 2002. "Prices, Exchange Rates and Export Competitiveness of New Zealand: an assessment using Divisia Indices," Economics Discussion Papers 2002-9, School of Economics, Kingston University London.
    • Handle: RePEc:ris:kngedp:2002_009
    as

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    References listed on IDEAS

    as
    1. 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.
    2. Anne-Marie Brook & David Hargreaves, 2001. "PPP-based analysis of New Zealand's equilibrium exchange rate," Reserve Bank of New Zealand Discussion Paper Series DP2001/01, Reserve Bank of New Zealand.
    3. Officer, Lawrence H., 1986. "The law of one price cannot be rejected: Two tests based on the tradable/nontradable price ratio," Journal of Macroeconomics, Elsevier, vol. 8(2), pages 159-182.
    4. Manzur, Meher & Dongling, Chen & Clements, Kenneth W., 1991. "Real exchange rates and divisia moments of world trade," Economics Letters, Elsevier, vol. 36(1), pages 77-79, May.
    5. Meisner, James F., 1979. "Divisia moments of U.S. industry, 1947-1978," Economics Letters, Elsevier, vol. 4(3), pages 239-242.
    6. Lawrence H. Officer, 1982. "The Purchasing-Power-Parity Theory of Gerrard de Malynes," History of Political Economy, Duke University Press, vol. 14(2), pages 256-259, Summer.
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    More about this item

    Keywords

    Divisia index; domestic disinflation; export competitiveness;
    All these keywords.

    JEL classification:

    • C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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