What happens when the Kiwi flies? Sectoral effects of exchange rate shocks on the New Zealand economy

Ozer Karagedikli, Michael Ryan, Daan Steenkamp and Tugrul Vehbi ()

Economic Modelling, 2016, vol. 52, issue PB, 945-959

Abstract: We use a data-rich approach, a factor-augmented vector autoregression (FAVAR), to identify idiosyncratic exchange rate shocks and examine the effects of these shocks on different sectors of the New Zealand economy. We find that an unexpected shock to the exchange rate has significant effects on relatively tradable sectors of the economy. Whilst this is expected, relatively ‘more’ non-tradable sectors of the economy are also influenced by shocks to the exchange rate, presumably due to their linkages to more trade-exposed sectors. We also find that exchange rate shocks explain a small proportion of overall business cycle variability, implying that the exchange rate acts as a buffer rather than as a source of shock.

Keywords: Exchange rate; Factor VAR (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:52:y:2016:i:pb:p:945-959

DOI: 10.1016/j.econmod.2015.10.034

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