The equilibrium exchange rate according to PPP and UIP

Dominick Stephens
Additional contact information
Dominick Stephens: Reserve Bank of New Zealand, http://www.rbnz.govt.nz

No DP 2004/03, Reserve Bank of New Zealand Discussion Paper Series from Reserve Bank of New Zealand

Abstract: This paper uses Purchasing Power Parity (PPP) and Uncovered Interest Rate Parity (UIP) to estimate a time-varying equilibrium for the $NZ/$US nominal exchange rate over the period 1992 to 2003. While PPP is supported, the data does not support the strictest form of UIP. The estimated equilibrium can be considered a Behavioural Equilibrium Exchange Rate (BEER) that is conditional on interest rates and price levels. The large swings in New Zealand's exchange rate during the 1990s were broadly consistent with the estimated conditional equilibrium, while the equally large swings in the exchange rate since 2000 were moves away from the conditional equilibrium. This may be because some factor other than interest rates or price levels has driven the exchange rate away from the conditional equilibrium since 2000. Alternatively, the long-run relationship between interest rates and the exchange rate may have changed since the 1990s.

JEL-codes: C32 F31 (search for similar items in EconPapers)
Pages: 28p
Date: 2004-04
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (16)

Downloads: (external link)
http://www.rbnz.govt.nz/-/media/ReserveBank/Files/ ... ers/2004/dp04-03.pdf

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nzb:nzbdps:2004/03

Access Statistics for this paper

More papers in Reserve Bank of New Zealand Discussion Paper Series from Reserve Bank of New Zealand Contact information at EDIRC.
Bibliographic data for series maintained by Reserve Bank of New Zealand Knowledge Centre ().