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Australia's Medium-Run Exchange Rate: A Macroeconomic Balance Approach

  • NIKOLA DVORNAK
  • MARION KOHLER
  • GORDON MENZIES

The determinants of Australia's exchange rate based on the internal-external balance approach introduced by Williamson (1983) were analysed. Internal balance implies that the economy is operating at supply potential with no inflationary pressures. External balance is characterised as the sustainable net flow of resources (corresponding to a current account to gross domestic product ratio) between countries in internal balance. After estimating a disaggregated trade model for Australia, estimates of the medium-term exchange rate associated with a given current account position were provided. These estimates, however, vary considerably through time because of variations in key parameters. Copyright 2005 The Economic Society Of Australia.

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Article provided by The Economic Society of Australia in its journal The Economic Record.

Volume (Year): 81 (2005)
Issue (Month): 253 (06)
Pages: 101-112

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Handle: RePEc:bla:ecorec:v:81:y:2005:i:253:p:101-112
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  1. David Gruen & Tim Robinson & Andrew Stone, 2002. "Output Gaps in Real Time: Are They Reliable Enough to Use for Monetary Policy?," RBA Research Discussion Papers rdp2002-06, Reserve Bank of Australia.
  2. Wilkinson, Jenny, 1992. "Explaining Australia's Imports: 1974-1989," The Economic Record, The Economic Society of Australia, vol. 68(201), pages 151-64, June.
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  8. G. Russell Kincaid & Martin Fetherston & Peter Isard & Hamid Faruqee, 2001. "Methodology for Current Account and Exchange Rate Assessments," IMF Occasional Papers 209, International Monetary Fund.
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