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Modelling the Long-run Real Effective Exchange Rate of the New Zealand Dollar

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  • Ronald MacDonald

Abstract

In this paper we use the behavioural and permanent equilibrium exchange rate approaches 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. Copyright Blackwell Publishers Ltd/University of Adelaide and Flinders University of South Australia 2002.

Suggested Citation

  • 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.
  • Handle: RePEc:bla:ausecp:v:41:y:2002:i:4:p:519-537
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    References listed on IDEAS

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    1. Campbell, John Y. & Clarida, Richard H., 1987. "The dollar and real interest rates," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 27(1), pages 103-139, January.
    2. Susana Garcia Cervero & J. Humberto Lopez & Enrique Alberola Ila & Angel J. Ubide, 1999. "Global Equilibrium Exchange Rates; Euro, Dollar, “Ins,” “Outs,” and Other Major Currencies in a Panel Cointegration Framework," IMF Working Papers 99/175, International Monetary Fund.
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    6. Meese, Richard A & Rogoff, Kenneth, 1988. " Was It Real? The Exchange Rate-Interest Differential Relation over the Modern Floating-Rate Period," Journal of Finance, American Finance Association, vol. 43(4), pages 933-948, September.
    7. Edison, Hali J. & Pauls, B. Dianne, 1993. "A re-assessment of the relationship between real exchange rates and real interest rates: 1974-1990," Journal of Monetary Economics, Elsevier, vol. 31(2), pages 165-187, April.
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    9. Ronald MacDonald & Jun Nagayasu, 2000. "The Long-Run Relationship Between Real Exchange Rates and Real Interest Rate Differentials: A Panel Study," IMF Staff Papers, Palgrave Macmillan, vol. 47(1), pages 1-5.
    10. Clark, Peter B. & MacDonald, Ronald, 2004. "Filtering the BEER: A permanent and transitory decomposition," Global Finance Journal, Elsevier, vol. 15(1), pages 29-56.
    11. Hamid Faruqee, 1995. "Long-Run Determinants of the Real Exchange Rate: A Stock-Flow Perspective," IMF Staff Papers, Palgrave Macmillan, vol. 42(1), pages 80-107, March.
    12. Johansen, Søren & Juselius, Katarina, 1992. "Testing structural hypotheses in a multivariate cointegration analysis of the PPP and the UIP for UK," Journal of Econometrics, Elsevier, vol. 53(1-3), pages 211-244.
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    14. MacDonald, Ronald, 2000. "Concepts to Calculate Equilibrium Exchange Rates: An Overview," Discussion Paper Series 1: Economic Studies 2000,03, Deutsche Bundesbank.
    15. Ronald MacDonald, 1997. "What Determines Real Exchange Rates? The Long and Short of it," IMF Working Papers 97/21, International Monetary Fund.
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    Cited by:

    1. Nikolaos Giannellis & Athanasios Papadopoulos, 2007. "Estimating the Equilibrium Effective Exchange Rate for Potential EMU Members," Open Economies Review, Springer, vol. 18(3), pages 307-326, July.
    2. Njindan Iyke Bernard & Odhiambo Nicholas M., 2015. "The Determinants of Long-run Real Exchange Rate in South Africa: A Fundamental Equilibrium Approach," Global Economy Journal, De Gruyter, vol. 15(3), pages 319-336, September.
    3. Holtemöller, Oliver & Mallick, Sushanta, 2013. "Exchange rate regime, real misalignment and currency crises," Economic Modelling, Elsevier, vol. 34(C), pages 5-14.
    4. Bernard Njindan Iyke & Nicholas M. Odhiambo, 2017. "Modelling long-run equilibrium exchange rate in Botswana," Macroeconomics and Finance in Emerging Market Economies, Taylor & Francis Journals, vol. 10(3), pages 268-285, September.
    5. Angela Huang, 2004. "Examining finite-sample problems in the application of cointegration tests for long-run bilateral exchange rates," Reserve Bank of New Zealand Discussion Paper Series DP 2004/08, Reserve Bank of New Zealand.
    6. Reza Siregar & Ramkishen Rajan, 2006. "Models of Equilibrium Real Exchange Rates Revisited: A Selective Review of the Literature," Centre for International Economic Studies Working Papers 2006-04, University of Adelaide, Centre for International Economic Studies.
    7. Reza Siregar, 2011. "The Concepts of Equilibrium Exchange Rate: A Survey of Literature," Staff Papers, South East Asian Central Banks (SEACEN) Research and Training Centre, number sp81, April.
    8. Rey, Serge, 2009. "L’apport du NATREX à la modélisation des taux de change d’équilibre : théorie et application au dollar canadien," L'Actualité Economique, Société Canadienne de Science Economique, vol. 85(2), pages 131-181, juin.
    9. Dominick Stephens, 2004. "The equilibrium exchange rate according to PPP and UIP," Reserve Bank of New Zealand Discussion Paper Series DP 2004/03, Reserve Bank of New Zealand.

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    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange

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