RDP 9108: Australia's Real Exchange Rate – Is it Explained by the Terms of Trade or by Real Interest Differentials? Data Appendix

1. Quarterly Data

The Real Exchange Rate

The real exchange rate is a trade-weighted exchange rate adjusted ratio of the Australian “Medicare adjusted” Consumer Price Index (CPI) to the CPIs of its 22 major trading partners. Trade weights have been calculated as an average of annual trade flows over the period from 1980 to 1989.

All exchange rates are quarterly averages. Exchange rate and CPI data has primarily been collected from the IMF's International Financial Statistics (IFS) with a few major exceptions. For Australia, a “Medicare adjusted” CPI series is used. Data for Taiwan is collected from Financial Statistics, Taiwan District, Republic of China. Exchange rate data for Hong Kong is collected from the International Department's Dealing Room, Reserve Bank of Australia (RBA). Where CPI data is not available (for example, in the most recent quarters for some of the smaller countries) estimates have been taken from a variety of sources.

Terms of Trade

Export and import implicit price deflators for goods and services are taken from Balance of Payments, Australia, Quarterly ABS Publication, Catalogue No. 5302.0.

Quarterly averages of the Reserve Bank Commodity Price Index, published in the RBA Bulletin, are used in calculating TOT(C).

Real Interest Rates

All real interest differentials used in the paper are calculated as the difference between Australian real interest rates and an arithmetic average of real interest rates in the US, UK, Japan and Germany. Real interest rates are calculated by adjusting annualised nominal interest rates for annualised inflationary expectations. Inflationary expectations calculations are based on CPIs.

Short Nominal Interest Rates

US, UK and Australia – quarterly averages of monthly average three month treasury bill rates published in the RBA Bulletin.

Germany – quarterly averages of the end-month 3mth Fibor rate from the OECD Main Economic Indicators (MEI).

Japan – quarterly average of end-month 3mth Gensaki rate from OECD MEI.

Because the Japanese short nominal interest rate is only available from 1978, the short real interest differentials before 1978 compare Australia with only the US, the UK, and Germany.

Long Nominal Interest Rates

Quarterly averages of monthly average data are used for all countries except Australia where quarterly averages of the last trading day of each month are used. All data is taken from the RBA Bulletin Database. The series used are:

US – Government security yields greater than 10 years
UK – Government security yields of 10 years
Germany – Public sector bond yields 7–15 years
Japan – Central government bond yields
Australia – 10 year bonds.

2. Monthly Data

Real Exchange Rate

The monthly real exchange rate is calculated using the same methodology, data sources and trade weights as the quarterly real exchange rate. Note, however, that end month exchange rates are used.

Monthly consumer prices series are taken from the IFS for all countries except:

• Australia where the ABS published “Medicare adjusted” CPI series is interpolated to a monthly series.
• PNG and NZ where quarterly series from IFS are interpolated to derive monthly series.
• Taiwan where monthly data is taken from the Financial Statistics, Taiwan District, Republic of China.
• China where the annual series from IFS is interpolated to derive a monthly series.

For recent months, these IFS CPI statistics have been updated from a variety of sources for many of the Asian countries.

Terms of Trade

The RBA Commodity Price Index, all items, in $A is taken from the RBA Bulletin Database.

The Export Price Index, published in ABS Cat. No. 6405.0, is based 1989/90. Prior to July 1989, this series is spliced with 1979/80 based series.

Quarterly export and import implicit price deflators for goods and services (see reference above) are interpolated to form monthly series. For the most recent three months, the series are linearly smoothed.

Short Nominal Interest Rates

US, UK, Japan and Germany – 3 month Eurocurrency rates taken at last trading day of month from International Department, RBA.

Australia – 90 day bill rate – taken at last trading day from Domestic Markets Department, RBA.

Long Nominal Interest Rates

Taken from RBA Bulletin. Monthly average data is used for all countries except Australia where last trading day of month is used.

US – Government security yields greater than 10 years
UK – Government security yields of 10 years
Germany – Public sector bond yields 7–15 years
Japan – Central government bond yields
Australia – 10 year bonds.