The purpose of this paper is to assess the level of the real effective exchange rate in Australia and New Zealand.
The paper describes three empirical models commonly used to conduct exchange rate assessments and applies them to data for Australia and New Zealand.
The baseline results using data and medium‐term projections, available as of October 2008, suggest that the Australian and New Zealand dollar were broadly in line with fundamentals, but with a wide variation across models. A battery of sensitivity tests illustrates that altering the underlying assumptions can yield substantially different assessments. The results are particularly sensitive to the choice of assessment horizon, the set of economies included in the sample, medium‐term forecasts, and the exchange rate reference period.
The paper provides an assessment of the exchange rates in Australia and New Zealand.
