Chapter 5 Regression analysis
We now analyse the impact of exchange rate movements on the unit values. Our analysis follows the same steps for both short- and long-run estimates. First, we provide an estimate of the average elasticity of NZD-converted unit values to the bilateral exchange rate. We then allow this estimate to differ by invoice currency group. Having shown that the exchange rate elasticity differs dramatically according to invoice currency, we examine whether, within currency groups, there is any further role for firm or product characteristics in influencing observed ERPT. Finally, we compare these results to the case where differences in invoice currency are ignored, showing that this latter approach leads to a strong estimated relationship between firm characteristics and ERPT behaviour (at least in the short run).
