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Australia's Medium‐Run Exchange Rate: A Macroeconomic Balance Approach

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  • NIKOLA DVORNAK
  • MARION KOHLER
  • GORDON MENZIES

Abstract

The determinants of Australia's exchange rate based on the internal–external balance approach introduced by Williamson (1983) were analysed. Internal balance implies that the economy is operating at supply potential with no inflationary pressures. External balance is characterised as the sustainable net flow of resources (corresponding to a current account to gross domestic product ratio) between countries in internal balance. After estimating a disaggregated trade model for Australia, estimates of the medium‐term exchange rate associated with a given current account position were provided. These estimates, however, vary considerably through time because of variations in key parameters.

Suggested Citation

  • 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.
    • Handle: RePEc:bla:ecorec:v:81:y:2005:i:253:p:101-112
    DOI: 10.1111/j.1475-4932.2005.00236.x
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    Cited by:

    1. Tim Atkin & Ellis Connolly, 2013. "Australian Exports: Global Demand and the High Exchange Rate," RBA Bulletin (Print copy discontinued), Reserve Bank of Australia, pages 1-10, June.
    2. Hali Edison & Francis Vitek, 2009. "Exchange rate assessments for Australia and New Zealand," Journal of Financial Economic Policy, Emerald Group Publishing Limited, vol. 1(2), pages 155-176, May.
    3. Rochelle Belkar & Lynne Cockerell & Christopher Kent, 2008. "Current Account Deficits: Tha Australian Debate," Central Banking, Analysis, and Economic Policies Book Series, in: Kevin Cowan & Sebastián Edwards & Rodrigo O. Valdés & Norman Loayza (Series Editor) & Klaus Schmidt- (ed.),Current Account and External Financing, edition 1, volume 12, chapter 13, pages 491-535, Central Bank of Chile.
    4. Rebecca L Driver & Peter F Westaway, 2005. "Concepts of equilibrium exchange rates," Bank of England working papers 248, Bank of England.
    5. 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.
    6. 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.
    7. Ms. Hali J Edison & Mr. Francis Vitek, 2009. "Australia and New Zealand Exchange Rates: A Quantitative Assessment," IMF Working Papers 2009/007, International Monetary Fund.
    8. David Norman, 2006. "Modelling Manufactured Exports: Evidence from Australian States," RBA Research Discussion Papers rdp2006-01, Reserve Bank of Australia.
    9. Gordon D. Menzies, 2005. "Who'S Afraid Of The Marshall-Lerner Condition?," Economic Papers, The Economic Society of Australia, vol. 24(4), pages 309-315, December.
    10. Jonathan Hambur & Lynne Cockerell & Christopher Potter & Penelope Smith & Michelle Wright, 2015. "Modelling the Australian Dollar," RBA Research Discussion Papers rdp2015-12, Reserve Bank of Australia.

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    More about this item

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements

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