Nominal exchange rate neutrality: the case of Australia

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Harbinger, C & Wijeweera, A 2010, ' Nominal exchange rate neutrality: the case of Australia', International Journal of Economics and Business Research, vol. 2,no. 5.

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This study uses quarterly macroeconomic data over the period of 1984-2003 along with a seven-variable structural vector autoregression model to investigate the nominal exchange rate neutrality hypothesis for the case of Australia. Impulse response functions and variance decompositions are generated for four different variations of the model for empirically testing the hypothesis. Empirical evidence presented in this paper support the nominal exchange rate neutrality. In addition, we find that the neutrality is invariant to the choice of the nominal exchange rate or the measure of monetary aggregates used in the estimation.