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Extending the Reserve Bank’s macroeconomic balance model of the exchange rate

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Abstract

The exchange rate matters a lot in New Zealand and the Reserve Bank uses several different models, each imprecise, to analyse it. This note focuses on just one of those approaches: the macro-balance model of the exchange rate. We use that model to estimate the exchange rate which, if sustained, would stabilise at around current levels the negative net international investment position (as a percentage of GDP). The sensitivity of the model estimates to some of the key assumptions is illustrated.

Suggested Citation

  • James Graham & Daan Steenkamp, 2012. "Extending the Reserve Bank’s macroeconomic balance model of the exchange rate," Reserve Bank of New Zealand Analytical Notes series AN2012/08, Reserve Bank of New Zealand.
    • Handle: RePEc:nzb:nzbans:2012/08
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    References listed on IDEAS

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    1. Campa, Jose M. & Goldberg, Linda S., 2002. "Exchange rate pass-through into import prices: A macro or micro phenomenon?," IESE Research Papers D/475, IESE Business School.
    2. Mr. Luca A Ricci & Mr. Jonathan David Ostry & Mr. Jaewoo Lee & Mr. Alessandro Prati & Mr. Gian M Milesi-Ferretti, 2008. "Exchange Rate Assessments: CGER Methodologies," IMF Occasional Papers 2008/002, International Monetary Fund.
    3. Mr. Charles Frederick Kramer, 1996. "FEERs and Uncertainty: Confidence Intervals for the Fundamental Equilibrium Exchange Rate of the Canadian Dollar," IMF Working Papers 1996/068, International Monetary Fund.
    4. repec:imf:imfops:2001/006 is not listed on IDEAS
    5. William R. Cline & John Williamson, 2012. "Estimates of Fundamental Equilibrium Exchange Rates, May 2012," Policy Briefs PB12-14, Peterson Institute for International Economics.
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    Cited by:

    1. Kamber, Gunes & McDonald, Chris & Sander, Nick & Theodoridis, Konstantinos, 2016. "Modelling the business cycle of a small open economy: The Reserve Bank of New Zealand's DSGE model," Economic Modelling, Elsevier, vol. 59(C), pages 546-569.
    2. Miles Workman, 2015. "Estimating the Cyclically- and Absorption-adjusted Fiscal Balance for New Zealand," Treasury Working Paper Series 15/09, New Zealand Treasury.
    3. Willy Chetwin & Tim Ng & Daan Steenkamp, 2013. "New Zealand’s short- and medium-term real exchange rate volatility: drivers and policy implications," Reserve Bank of New Zealand Analytical Notes series AN2013/03, Reserve Bank of New Zealand.
    4. Wright, Nicholas Anthony, 2013. "Examining measures of the equilibrium Real Exchange Rate: Macroeconomic Balance and the Natural Real Exchange Rate Approaches," MPRA Paper 61170, University Library of Munich, Germany.
    5. Hakan Kara & Cagri Sarikaya, 2013. "Turkiye�de Konjonkturel Etkilerden Arindirilmis Cari Islemler Dengesi," Working Papers 1340, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.

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