Academic journal article The Reserve Bank of New Zealand Bulletin

Information Release: Reserve Bank of New Zealand Reweights TWI

Academic journal article The Reserve Bank of New Zealand Bulletin

Information Release: Reserve Bank of New Zealand Reweights TWI

Article excerpt

20 December 2000

In January of 1999, the Reserve Bank revised the method used to calculate the Trade-Weighted index (TWI) measure of the New Zealand dollar, and also announced plans to reweight the TWI annually. Accordingly, The Reserve Bank of New Zealand has revised the TWI weights as of today, Wednesday, 20 December 2000.

Explanation

As described in our information release of 21 December 1998:

* The TWI is based on the value of the New Zealand dollar (NZD) against the Australian, US, Japanese, UK and Euro Area currencies.

* The TWI is 50:50 weighted according to:

-- each currency area's share of New Zealand's merchandise trade (exports plus imports), normalised to total 100 percent; and

-- each currency-area's share of the combined nominal GDP of those 5 currency areas.

* The RBNZ releases the TWI daily, using the exchange rates prevailing in the market at 11:10am. The 11:10am calculation today utilises the new weights and new scaling (IND) factor detailed above.

* The scaling (IND) factor is calculated to prevent spurious shifts in the TWI that could otherwise occur as a result of the reweighting. By convention, the rescaling is done using the exchange rates prevailing at 11:10am on the day before the new weights are released, ie 11:10am on 19 December. The new IND factor is set so that the TWI with the old weights is equal to the TWI with the new weights at that point in time. …

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