Assessment of Fiji’s exchange rate

K.P. Prabheesh, Branesh Prakash and Viliame Vuniivi

Economic Analysis and Policy, 2023, vol. 78, issue C, 1282-1305

Abstract: This paper empirically estimates Fiji’s bilateral equilibrium real exchange rate with two of its key trading partners, the US and Australia. Applying the Behavioural Equilibrium Exchange Rate (BEER) approach, we estimate the equilibrium exchange rate by considering the productivity differential, real interest rate differential, net foreign assets, money supply, and terms of trade. Using monthly data from March 2011 to September 2022 and a system approach to cointegration, a strong relationship between the real exchange rate and its fundamentals is found, but importance of factors differed by trading partner. Our findings show that the Fijian Dollar has been undervalued against both US Dollar and Australian Dollar in recent years, but to varying degrees. Our analysis underlines the importance of assessing bilateral exchange rate misalignments in basket pegs when devising exchange rate policy.

Keywords: Exchange rate; Behavioural Equilibrium Exchange Rate; Misalignment; Basket pegs; Fiji (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecanpo:v:78:y:2023:i:c:p:1282-1305

DOI: 10.1016/j.eap.2023.05.013

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