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A macroeconomic balance measure of New Zealand's equilibrium exchange rate

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Abstract

We estimate the fair value of the New Zealand dollar using the macroeconomic balance approach. The model's elasticities are calibrated so that they are more appropriate to a small commodity-exporting economy. Over the 1990s, the model estimates that the fair value for the TWI fluctuated between 52 and 59. For the final quarter of 1999, the model estimates that a TWI of around 56 would have been consistent with macroeconomic balance, implying that the TWI (which was around 54.5) was then approximately at fair value. However, this result is subject to a significant amount of uncertainty.

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  • Anne-Marie Brook & David Hargreaves, 2000. "A macroeconomic balance measure of New Zealand's equilibrium exchange rate," Reserve Bank of New Zealand Discussion Paper Series DP2000/09, Reserve Bank of New Zealand.
  • Handle: RePEc:nzb:nzbdps:2000/09
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    File URL: http://www.rbnz.govt.nz/-/media/ReserveBank/Files/Publications/Discussion%20papers/2000/dp00-9.pdf
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    Cited by:

    1. Geoff Bertram, 2002. "Factor income shares, the banking sector, the exchange rate, and the New Zealand current account deficit," New Zealand Economic Papers, Taylor & Francis Journals, vol. 36(2), pages 177-198.
    2. Chris McDonald, 2012. "Kiwi drivers the New Zealand dollar experience," Reserve Bank of New Zealand Analytical Notes series AN2012/02, Reserve Bank of New Zealand.
    3. Axel Grossmann & Marc Simpson & Teofilo Ozuna, 2014. "Investigating the PPP hypothesis using constructed U.S. dollar equilibrium exchange rate misalignments over the post-bretton woods period," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 38(2), pages 235-268, April.
    4. Hali J Edison & Francis Vitek, 2009. "Australia and New Zealand Exchange Rates; A Quantitative Assessment," IMF Working Papers 09/7, International Monetary Fund.
    5. Hali Edison & Francis Vitek, 2009. "Exchange rate assessments for Australia and New Zealand," Journal of Financial Economic Policy, Emerald Group Publishing, vol. 1(2), pages 155-176, May.
    6. Kam Szeto & David Oxley, 2014. "Examining the Elasticity of New Zealand’s Current Account to the Real Exchange Rate," Treasury Working Paper Series 14/12, New Zealand Treasury.
    7. Aron Drew & Özer Karagedikli, 2007. "Some Benefits of Monetary-Policy Transparency in New Zealand," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 57(11-12), pages 521-539, December.
    8. Rebecca L Driver & Peter F Westaway, 2005. "Concepts of equilibrium exchange rates," Bank of England working papers 248, Bank of England.
    9. Simon Wren-Lewis, 2004. "A model of Equilibrium Exchange Rates for the New Zealand and Australian dollar," Reserve Bank of New Zealand Discussion Paper Series DP 2004/07, Reserve Bank of New Zealand.
    10. Gemma Mabin, 2010. "New Zealand's Exchange Rate Cycles: Evidence and Drivers," Treasury Working Paper Series 10/10, New Zealand Treasury.
    11. David Hargreaves & Elizabeth Watson, 2011. "Sudden stops, external debt and the exchange rate," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 74, pages 1-11, December.

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