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Determinants of the Euro Real Effective Exchange Rate: A BEER/PEER Approach

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Author Info
Francisco Maeso-Fernandez
Chiara Osbat
Bernd Schnatz

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Abstract

This paper presents an empirical analysis of the medium-term determinants of the euro effective exchange rate. The empirical analysis builds on synthetic quarterly data from 1975 to 1998, and derives a Behavioural Equilibrium Exchange Rate (BEER) and a Permanent Equilibrium Exchange Rate (PEER). Four different specifications are retained, due to the difficulties encountered in specifying an encompassing model. The results indicate that differentials in real interest rates and productivity, and (in some specifications) the relative fiscal stance and the real price of oil, have a significant influence on the euro effective exchange rate. Assessing the existence and the extent of the over- or undervaluation of the exchange rate is not straightforward, since these different specifications often lead to contrasting findings. However, all four specifications point unambiguously to the undervaluation of the euro in 2000, although the extent of this undervaluation largely depends on the specification chosen. Copyright Blackwell Publishers Ltd/University of Adelaide and Flinders University of South Australia 2002.

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File URL: http://www.blackwell-synergy.com/links/doi/10.1111/1467-8454.00174
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Publisher Info
Article provided by Blackwell Publishing in its journal Australian Economic Papers.

Volume (Year): 41 (2002)
Issue (Month): 4 (December)
Pages: 437-461
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Handle: RePEc:bla:ausecp:v:41:y:2002:i:4:p:437-461

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  13. Paruolo, Paolo, 2002. "Asymptotic Inference On The Moving Average Impact Matrix In Cointegrated I (2) Var Systems," Econometric Theory, Cambridge University Press, vol. 18(03), pages 673-690, June. [Downloadable!]
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  21. Angel J. Ubide & J. Humberto Lopez & Enrique Alberola Ila & Susana Garcia Cervero, 1999. "Global Equilibrium Exchange Rates - Euro, Dollar, "Ins," "Outs," and Other Major Currencies in a Panel Cointegration Framework," IMF Working Papers 99/175, International Monetary Fund.
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  22. Peter B. Clark & Ronald MacDonald, 2000. "Filtering the BEER - A Permanent and Transitory Decomposition," IMF Working Papers 00/144, International Monetary Fund.
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