A model of Equilibrium Exchange Rates for the New Zealand and Australian dollar
This paper extends the `Five Area Bilateral Equilibrium Exchange Rate' (FABEER) model used in Wren-Lewis (2003) to include New Zealand and Australia. This model calculates medium term exchange rates conditional on assumptions for `sustainable' current accounts. The model suggests that the equilibrium value of both currencies has been declining over the last ten years and that both currencies were near fair value (on average) during 2002. Equilibrium values against the US dollar are estimated to be around 0.50 (New Zealand) and 0.59 (Australia), although these estimates are sensitive to the assumed equilibrium values for variables like commodity prices and the current account.
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- Rebecca L Driver & Peter F Westaway, 2005. "Concepts of equilibrium exchange rates," Bank of England working papers 248, Bank of England.
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- Anne-Marie Brook & David Hargreaves, 2001. "PPP-based analysis of New Zealand's equilibrium exchange rate," Reserve Bank of New Zealand Discussion Paper Series DP2001/01, Reserve Bank of New Zealand.
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