Equilibrium real exchange rate in Fiji: an empirical study

Abstract

Given the fact that Fiji has a very narrow range of exportable commodities with a high degree of dependence on tourism earnings, maintenance of a competitive real exchange rate is of utmost importance. This paper undertakes an empirical analysis of Fiji's real exchange rate, by estimating long-run equilibrium real exchange rate and examining the short-run dynamics of real exchange rates and detection of possible misalignment. Empirical investigation shows that there has been no large, persistent instance of misalignment of Fiji's Real Effective Exchange Rate (REER).