The Equilibrium Exchange Rate in a Bayesian State-Space Model: An Application to Australia
The equilibrium exchange rate is a closely scrutinized variable in international finance and monetary economics. A model to estimate an equilibrium exchange rate is proposed in this paper. It consists of several building blocks: a state-space structure, uncovered interest parity and the equilibrium exchange rate determinants. Prior information about the impact of the determinants is used when Bayesian estimation of the model is carried out. The estimates reveal that on average the Australian dollar was overvalued by about 3 percent during the period 1984-2004. The major overvaluations of the AUD/USD exchange rate took place during the period 1986-1988, and around the years 1990, and 2003. The information content of the acquired estimates of exchange rate misalignments appears to be superior to the purchasing parity equivalent.
When requesting a correction, please mention this item's handle: RePEc:wpa:wuwpif:0505005. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (EconWPA)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.