A macroeconomic balance measure of New Zealand's equilibrium exchange rate

We estimate the fair value of the New Zealand dollar using the macroeconomic balance approach. The model's elasticities are calibrated so that they are more appropriate to a small commodity-exporting economy. Over the 1990s, the model estimates that the fair value for the TWI fluctuated between 52 and 59. For the final quarter of 1999, the model estimates that a TWI of around 56 would have been consistent with macroeconomic balance, implying that the TWI (which was around 54.5) was then approximately at fair value. However, this result is subject to a significant amount of uncertainty.