Australia and New Zealand Exchange Rates

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 mediumterm projections available as of October 2008, suggest that the Australian and New Zealand dollars were broadly in line with fundamentals, but with a wide variation across models. A battery of sensitivity tests illustrate 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.Exchange rate assessments;Real effective exchange rates;Fiscal sustainability;Forecasting models;exchange rate, current account, current account balance, effective exchange rate, real effective exchange rate, real exchange rate, exchange rates, current account deficits, exchange rate developments, domestic currency, nominal effective exchange rate, exchange rate data, current account deficit, exchange rate overvaluation, exchange rate adjustment, reserve bank, exchange rate pass, bilateral exchange rates, equilibrium exchange rate, current account balances, net debtor, central bank, budget balance, foreign debt, floating exchange rates, exchange rate misalignment, currency composition, effective exchange rates, exchange rate movements, real exchange rates, debtor countries, nominal bilateral exchange rates, exchange rate changes, balance of payments