5 Conclusion
This paper seeks to understand the behaviour of New Zealand's exchange rate cycles, both through looking at evidence of its volatility and variability and through understanding what are the key factors driving it over different time horizons.
This paper finds that New Zealand does have large exchange rate cycles, but that this is also the case in several other relevant economies. Short-term volatility is high in New Zealand, and is similar to the exchange rate volatility experienced in Australia and Japan. It also shows that there are many factors influencing exchange rate cycles, including global and domestic factors.
The findings in this paper raise important questions that will be explored in the companion paper Mabin (forthcoming). Due to New Zealand's small domestic market, the large variability that New Zealand's exchange rate exhibits could be more damaging to New Zealand's economy than similarly variable exchange rates are to other economies. It also raises questions related to policy options to dampen exchange rate variability.
