Chapter

The Dynamics of the Real Exchange Rate and Current Account in a Small Open Economy: Australia

Guay C. Lim and Jerome L. Stein

in Fundamental Determinants of Exchange Rates

Published in print April 1998 | ISBN: 9780198293064
Published online November 2003 | e-ISBN: 9780191596940 | DOI: http://dx.doi.org/10.1093/0198293062.003.0003
 The Dynamics of the Real Exchange Rate and Current Account in a Small Open Economy: Australia

More Like This

Show all results sharing this subject:

  • Macroeconomics and Monetary Economics

GO

Show Summary Details

Preview

The underlying movements in the equilibrium real exchange rate – NATREX – in Australia are explained by the evolution of the fundamentals. They are: the terms of trade, the private saving ratio, fiscal policy, the productivity of capital in the tradable and nontradable sectors, and world real interest rates. Real trade deficits and the growth of the debt are initially produced by a rise in the productivity of capital, which stimulates investment or a decline in social thrift. The foreign debt is only a source of concern if it has resulted from a decline in the social saving ratio. Social policies designed to reduce a trade deficit that adversely affect growth are counterproductive.

Keywords: Australia fiscal policy; Australia productivity of capital; Australia social saving ratio; Australian current account; Australian foreign debt; Australian real exchange rate; terms of trade; world real interest rates

Chapter.  16574 words.  Illustrated.

Subjects: Macroeconomics and Monetary Economics

Full text: subscription required

How to subscribe Recommend to my Librarian

Buy this work at Oxford University Press »

Users without a subscription are not able to see the full content. Please, subscribe or login to access all content.