Estimating Equilibrium Exchange Rates

Author : John Williamson
Publisher : Peterson Institute
Page : 608 pages
File Size : 49,7 Mb
Release : 1994
Category : Business & Economics
ISBN : 0881320765

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Estimating Equilibrium Exchange Rates by John Williamson Pdf

The problems of exchange rate misalignments and the resulting payments imbalances have plagued the world economy for decades. At the Louvre Accord of 1987, the Group of Five industrial countries adopted a system of reference ranges for exchange rate management, influenced by proposals of C. Fred Bergstan and John Williamson for a target zone system. The reference range approach has, however, been operated only intermittently and half-heartedly, and questions continue to be raised in policy and scholarly circles about the design and operation of a full-fledged target zone regime. This volume, with chapters by leading international economists, explores one crucial issue in the design of a target zone system: the problem of calculating Williamson's concept of the fundamental equilibrium exchange rate (FEER). Williamson contributes an overview of the policy and analytic issues and a second chapter on his own calculations.

Author : Mr.Tarhan Feyzioglu
Publisher : International Monetary Fund
Page : 25 pages
File Size : 46,8 Mb
Release : 1997-09-01
Category : Business & Economics
ISBN : 9781451853179

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Estimating the Equilibrium Real Exchange Rate by Mr.Tarhan Feyzioglu Pdf

An equilibrium exchange rate is here defined as the level that is consistent with simultaneous internal and external balances as specified in Montiel (1996). Exogenous “fundamental” variables determining these balances are identified. Along the lines of Edwards (1994), a reduced form is estimated with the cointegration technique for Finland for the period 1975-95. The estimation produced a reasonable set of equilibrium exchange rates that appreciate with positive shocks to the terms of trade, world real interest rates, and the productivity differential between Finland and its trading partners.

Author : Ronald MacDonald,Jerome L. Stein
Publisher : Springer Science & Business Media
Page : 353 pages
File Size : 48,5 Mb
Release : 2012-12-06
Category : Business & Economics
ISBN : 9789401144117

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Equilibrium Exchange Rates by Ronald MacDonald,Jerome L. Stein Pdf

How successful is PPP, and its extension in the monetary model, as a measure of the equilibrium exchange rate? What are the determinants and dynamics of equilibrium real exchange rates? How can misalignments be measured, and what are their causes? What are the effects of specific policies upon the equilibrium exchange rate? The answers to these questions are important to academic theorists, policymakers, international bankers and investment fund managers. This volume encompasses all of the competing views of equilibrium exchange rate determination, from PPP, through other reduced form models, to the macroeconomic balance approach. This volume is essentially empirical: what do we know about exchange rates? The different econometric and theoretical approaches taken by the various authors in this volume lead to mutually consistent conclusions. This consistency gives us confidence that significant progress has been made in understanding what are the fundamental determinants of exchange rates and what are the forces operating to bring them back in line with the fundamentals.

Author : Balázs Égert
Publisher : Unknown
Page : 63 pages
File Size : 53,8 Mb
Release : 2007
Category : Electronic
ISBN : OCLC:1290322679

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Equilibrium Exchange Rates in the Transition by Balázs Égert Pdf

This paper sets out to estimate equilibrium real exchange rates for the Czech Republic, Hungary, Poland, Slovakia and Slovenia. A theoretical model is developed that provides an explanation for the appreciation of the real exchange rate based on tradable prices in the acceding countries. Our model can be considered as a competing but also completing framework to the traditional Balassa-Samuelson model. With this as a background, alternative cointegration methods are applied to time series (Engle-Granger, DOLS, ARDL and Johansen) and to three small-size panels (pooled and fixed effect OLS, DOLS, PMGE and MGE), which leaves us with around 5,000 estimated regressions. This enables us to examine the uncertainty surrounding estimates of equilibrium real exchange rates and the size of the underlying real misalignments.

Author : Mr.Charles Frederick Kramer
Publisher : International Monetary Fund
Page : 28 pages
File Size : 52,7 Mb
Release : 1996-07-01
Category : Business & Economics
ISBN : 9781451848960

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FEERs and Uncertainty by Mr.Charles Frederick Kramer Pdf

Models of Fundamental Equilibrium Exchange Rates (FEERs) impose internal and external balance, and so appeal to fundamental notions of equilibrium from a macroeconomic perspective. However, the need to estimate internal and external imbalances creates uncertainty in the approach. Parameters must be estimated, and equilibrium balances must be gauged using judgement. Hence it makes sense to consider the FEER as a statistical estimate rather than a fixed number, and to calculate confidence intervals for the FEER. This paper calculates such confidence intervals with data for Canada, under a variety of assumptions. The estimated confidence intervals are quite wide, principally because of uncertainty about price elasticities in the underlying trade equations.

Author : Tamim Bayoumi,Hamid Faruqee,Jaewoo Lee
Publisher : INTERNATIONAL MONETARY FUND
Page : 28 pages
File Size : 44,9 Mb
Release : 2005-12-01
Category : Equilibrium (Economics)
ISBN : 1451862482

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A Fair Exchange? Theory and Practice of Calculating Equilibrium Exchange Rates by Tamim Bayoumi,Hamid Faruqee,Jaewoo Lee Pdf

We develop a theory-based model of equilibrium exchange rates incorporating factors that have been found to matter empirically. The model provides insights into how variables should be measured and what are appropriate cross-country restrictions. We estimate this model using a panel of 12 industrial countries. The model fits the data relatively well, implying relatively fast adjustment to equilibrium and outperforming a random walk at longer horizons. Furthermore, we find that the rate of adjustment depends on the distance from equilibrium, suggesting that part of the explanation for slow adjustment is inaccurate measures of equilibrium.

Author : Tamim Bayoumi
Publisher : Unknown
Page : 58 pages
File Size : 41,5 Mb
Release : 1994
Category : Foreign exchange rates
ISBN : UCSD:31822016815946

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Robustness of Equilibrium Exchange Rate Calculations to Alternative Assumptions and Methodologies by Tamim Bayoumi Pdf

Author : Ms.Elena Loukoianova,Mr.Plamen Iossifov
Publisher : International Monetary Fund
Page : 23 pages
File Size : 47,6 Mb
Release : 2007-07-01
Category : Business & Economics
ISBN : 9781451867190

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Estimation of a Behavioral Equilibrium Exchange Rate Model for Ghana by Ms.Elena Loukoianova,Mr.Plamen Iossifov Pdf

The paper estimates a behavioral equilibrium exchange rate model for Ghana. Regression results show that most of the REER's long-run behavior can be explained by real GDP growth, real interest rate differentials (both relative to trading-partner countries), and the real world prices of Ghana's main export commodities. On the basis of these fundamentals, the REER in late 2006 was found to be very close to its estimated equilibrium level. The results also suggest, that deviations from the equilibrium path are eliminated within two to three years.

Author : Lawrence E. Hinkle,Peter J. Montiel,Peter Montiel
Publisher : World Bank Publications
Page : 638 pages
File Size : 51,6 Mb
Release : 1999
Category : Business & Economics
ISBN : 9780195211269

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Exchange Rate Misalignment by Lawrence E. Hinkle,Peter J. Montiel,Peter Montiel Pdf

The study cautiously identifies exchange rate misalignment as an important element in most of the exchange rate crises that plagued the developing world during the last decade. Given that the increasing integration of world capital markets, has escalated the costs of such crises, a broad consensus emerged in recent years, that the overriding objective of exchange rate policy in developing countries, should be to avoid episodes of prolonged, and substantial misalignment, i.e., situations in which the actual real exchange rate differs significantly from its long-run equilibrium value. It was the Bank's involvement in one such misalignment episode, that eventually led to this book. Following an overview on the concepts and measurement of exchange rate misalignment, its impact on the purchasing power parity, and the relationship between the external real exchange rate (RER), and the two-good internal RER for tradables non-tradables, the study presents methodologies - empirical applications - for estimating the RER equilibrium. The study reaches an optimistic conclusion - that enough is known to identify cases of misalignment, and be able to sound clear warning signals. The implication for exchange rate policy is that ignorance about the empirical value of the equilibrium exchange rate, cannot be used to clinch arguments for extreme exchange arrangements, such as clean floats, currency boards, and "dollarization."

Author : Peter Isard
Publisher : International Monetary Fund
Page : 54 pages
File Size : 40,8 Mb
Release : 2007-12
Category : Business & Economics
ISBN : UCSD:31822036950368

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Equilibrium Exchange Rates by Peter Isard Pdf

The paper describes six different methodologies that have been used to assess the equilibrium values of exchange rates and discusses their limitations. It applies several of the approaches to data for the United States as of 2006, illustrates that different approaches sometimes provide substantially different assessments, and asks which methodologies deserve the most weight in such situations. It argues that while it is generally desirable to consider the implications of several different approaches, since different approaches provide different types of perspectives, two of the methodologies seem particularly relevant for identifying threats to macroeconomic stability and growth.

Author : Ronald MacDonald
Publisher : Unknown
Page : 75 pages
File Size : 51,8 Mb
Release : 2016
Category : Electronic
ISBN : OCLC:1306166376

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Concepts to Calculate Equilibrium Exchange Rates by Ronald MacDonald Pdf

In this paper we present a critical overview of differnt methods of constructing an equilibrium exchange rate. The recent literature on purchasing power parity (PPP) indicates that on its own PPP is not a good vehicle for defining an equilibrium exchange rate. Rather, we argue that the latter can only be recover from a model in which the real determinants of exchange rates are explicitly modelled. The advantages and disadvantages of various such models are discussed. In particular, the internal-external balance approach to defining an equilibrium real exchange rate is disccused, and this method is compared to the so-called behavioural equilibrium approach. Finally, an approach which uses purely time series methods to construct an equilibrium exchange rate is also discussed.

Author : Mr.Angel J. Ubide,J. Humberto Lopez,Mr.Enrique Alberola Ila,Ms.Susana Garcia Cervero
Publisher : International Monetary Fund
Page : 44 pages
File Size : 46,7 Mb
Release : 1999-12-01
Category : Business & Economics
ISBN : 9781451858730

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Global Equilibrium Exchange Rates by Mr.Angel J. Ubide,J. Humberto Lopez,Mr.Enrique Alberola Ila,Ms.Susana Garcia Cervero Pdf

This paper presents a methodology for calculating bilateral equilibrium exchange rates for a panel of currencies in a way that guarantees global consistency. The methodology has three parts: a theoretical model that encompasses the balance of payments and the Balassa-Samuelson approaches to real exchange rate determination; an unobserved components decomposition in a cointegration framework that identifies a time-varying equilibrium real exchange rate; and an algebraic transformation that extracts bilateral equilibrium nominal rates. The results uncover that, by the start of Stage III of the European Economic and Monetary Union (EMU), the euro was significantly undervalued against the dollar and the pound, but overvalued against the yen. The paper also shows that the four major EMU currencies locked their parities with the euro at a rate close to equilibrium.

Author : Steven Vincent Dunaway,Lamin Leigh,Xiangming Li
Publisher : Unknown
Page : 20 pages
File Size : 55,8 Mb
Release : 2006
Category : Equilibrium (Economics)
ISBN : UCSD:31822034343285

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How Robust are Estimates of Equilibrium Real Exchange Rates by Steven Vincent Dunaway,Lamin Leigh,Xiangming Li Pdf

Increased attention is being paid to assessments of the actual values of countries' real exchange rates relative to their "equilibrium" values as suggested by "fundamental" determining factors. This paper assesses the robustness of alternative approaches and models commonly used to derive equilibrium real exchange rate estimates. Using China's currency to illustrate this analysis, the variance in estimates raises serious questions regarding how robust the results are. The basic conclusion from the tests used here is that, at least for China, small changes in model specifications, explanatory variable definitions, and time periods used in estimation can lead to very substantial differences in equilibrium real exchange rate estimates. Thus, such estimates should be treated with great caution.

Author : Omar Al Shehabi,Shuang Ding
Publisher : INTERNATIONAL MONETARY FUND
Page : 21 pages
File Size : 47,9 Mb
Release : 2008-04-01
Category : Electronic
ISBN : 1451869703

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Estimating Equilibrium Exchange Rates for Armenia and Georgia by Omar Al Shehabi,Shuang Ding Pdf

The significant real exchange rate appreciation in Armenia and Georgia since 2003, coupled with persistent current account deficits, raises the question of whether real exchange rates have become overvalued. This paper seeks to identify possible exchange rate misalignment by applying the behavioral equilibrium exchange rate approach, complemented by an analysis of the traditional competitiveness indicators. The results indicate an undervaluation of the Armenian dram and no significant misalignment of the Georgian lari in 2006.

Author : Mr.Joannes Mongardini
Publisher : International Monetary Fund
Page : 42 pages
File Size : 54,6 Mb
Release : 1998-01-01
Category : Business & Economics
ISBN : 9781451842159

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Estimating Egypt’s Equilibrium Real Exchange Rate by Mr.Joannes Mongardini Pdf

In light of the real appreciation of the Egyptian pound over the last six years and Egypt’s lackluster export growth, questions of external competitiveness and exchange rate policy have arisen. This paper sheds light on these issues by estimating empirically Egypt’s equilibrium real exchange rate, that is, the rate that is consistent with fundamentals. The results show that, while the real exchange rate was substantially overvalued before 1993, today it is only moderately above the equilibrium rate. Moreover, the analysis shows that the recent appreciation of the pound does not indicate a worsening misalignment.