Analysis of the Behavior of the New Zealand Dollar Exchange Rate: Comparison of Four Major Models

The purpose of this paper is to compare four major exchange rate models. Based on the value of adjusted R2, the uncovered interest parity model performs best, followed by the purchasing power parity model using the relative PPI, the Mundell-Fleming model, and the monetary model. The unexpected negative sign of the relative money supply in the monetary model and the unexpected negative sign of real money supply and the domestic interest rate in the Mundell-Fleming model suggest that more study is needed to examine the behavior of exchange rate fluctuations for the New Zealand dollar.