Research Discussion Paper – RDP 9201 The Impact of Real and Nominal Shocks on Australian Real Exchange Rates


This paper examines the behaviour of the real Australian dollar exchange rates against the US dollar and Japanese yen over the last two decades. It is argued that country differences in relative productivity growth in the traded goods sectors can help explain movements in the real rates. Using time series techniques together with restrictions derived from standard models of real exchange rate determination, the importance of real and nominal shocks to the real exchange rates are analysed. Both types of shocks are found to be important in explaining short-run deviations from Purchasing Power Parity, with the nominal shocks being more important for the rate against the US dollar than the rate against the yen.

View the Paper