Abstract:
The determinants of Australia's exchange rate based on the internal-external
balance approach introduced hy Williamson (1983) were analaysed. Internal balance implies that the economy is operating at supply
potential with no inflationary pressures. External balance is characterised
as the sustainable netflow of resources (corresponding to a current account to gross domestic product ratio) between countries in internal balance. After estimating a disaggragated made model for Australia, estimates of the medium-term exchange rate associated with a given current account position
were provided. These estimates, however, vary considerably through
time because of variations in key parameters.
