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Sensitivity of Australian Trade to the Exchange Rate

Author

Listed:
  • Duke Cole

    (Reserve Bank of Australia)

  • Samual Nightingale

    (Reserve Bank of Australia)

Abstract

The exchange rate is an important determinant of Australian exports and imports. Movements in the exchange rate affect the relative prices of traded goods and services, and thus the competitiveness of domestic producers of exports and import-competing goods and services. This article provides estimates of the sensitivity of Australian exports and imports to changes in the exchange rate at the aggregate and component level. Other things equal, a 10 per cent depreciation in the real exchange rate is estimated to increase export volumes by around 3 per cent and decrease import volumes by about 4 per cent after two years, which implies a cumulative net exports contribution to gross domestic product (GDP) of around 1½ percentage points over this period. However, the aggregate responses of exports and imports disguise substantial variation in the responses of the components. Trade in services is generally more responsive to movements in the exchange rate than trade in goods, although it takes longer for the full effect to be seen in services trade volumes.

Suggested Citation

  • Duke Cole & Samual Nightingale, 2016. "Sensitivity of Australian Trade to the Exchange Rate," RBA Bulletin (Print copy discontinued), Reserve Bank of Australia, pages 13-20, September.
    • Handle: RePEc:rba:rbabul:sep2016-02
    as

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    File URL: https://www.rba.gov.au/publications/bulletin/2016/sep/pdf/rba-bulletin-2016-09-sensitivity-of-australian-trade-to-the-exchange-rate.pdf
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    References listed on IDEAS

    as
    1. Nikola Dvornak & Marion Kohler & Gordon Menzies, 2005. "Australia's Medium‐Run Exchange Rate: A Macroeconomic Balance Approach," The Economic Record, The Economic Society of Australia, vol. 81(253), pages 101-112, June.
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    3. Gordon Menzies & Geoffrey Heenan, 1993. "Explaining the Recent Performance of Australia’s Manufactured Exports," RBA Research Discussion Papers rdp9310, Reserve Bank of Australia.
    4. repec:imf:imfwpa:15/400 is not listed on IDEAS
    5. Daniel M. Rees & Penelope Smith & Jamie Hall, 2016. "A Multi-sector Model of the Australian Economy," The Economic Record, The Economic Society of Australia, vol. 92(298), pages 374-408, September.
    6. Sean Langcake, 2016. "Conditions in the Manufacturing Sector," RBA Bulletin (Print copy discontinued), Reserve Bank of Australia, pages 27-34, June.
    7. Jarkko P. Jääskelä & Penelope Smith, 2013. "Terms of Trade Shocks: What Are They and What Do They Do?," The Economic Record, The Economic Society of Australia, vol. 89(285), pages 145-159, June.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Myoung Shik Choi & Hun Dae Lee, 2021. "The Value-Added Effects of Exchange Rates on Global Trade," Academic Journal of Interdisciplinary Studies, Richtmann Publishing Ltd, vol. 10, January.
    2. Joscha Beckmann & Mariarosaria Comunale, 2020. "Exchange rate fluctuations and the financial channel in emerging economies," Bank of Lithuania Working Paper Series 83, Bank of Lithuania.
    3. Lodge, David & Pérez, Javier J. & Albrizio, Silvia & Everett, Mary & De Bandt, Olivier & Georgiadis, Georgios & Ca' Zorzi, Michele & Lastauskas, Povilas & Carluccio, Juan & Parraga Rodriguez, Susana &, 2021. "The implications of globalisation for the ECB monetary policy strategy," Occasional Paper Series 263, European Central Bank.
    4. Joscha Beckmann & Mariarosaria Comunale, 2020. "Exchange rate fluctuations and the financial channel in emerging economies," Bank of Lithuania Working Paper Series 83, Bank of Lithuania.
    5. Evans, Olaniyi, 2021. "The Curious Case of Petro-Monetary Transmission Mechanism in Oil-Producing Countries: An Analysis of the Effect of Oil Price on Inflation in Nigeria," MPRA Paper 118198, University Library of Munich, Germany.

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