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On the Complementarity of Equilibrium Exchange-Rate Approaches

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  • Agnès Bénassy-Quéré
  • Sophie Béreau
  • Valérie Mignon

Abstract

Based on a simple, stock-flow adjustment framework, we show that existing concepts of equilibrium exchange rates can be viewed as realizations of the same model at different time horizons. We then compare fundamental and behavioral estimations of equilibrium exchange rates based on the same, econometric modeling of the net foreign asset position in the long run, for a panel of 15 countries over the 1980-2005 period. These estimations suggest that, although more robust to alternative assumptions, the BEER approach may rely on excessive confidence on past behaviors in terms of portfolio choices. Symmetrically, FEERs may underestimate the plasticity of international capital markets because they focus on the adjustment of the trade balance. Copyright � 2010 Blackwell Publishing Ltd.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Review of International Economics.

Volume (Year): 18 (2010)
Issue (Month): 4 (09)
Pages: 618-632

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Handle: RePEc:bla:reviec:v:18:y:2010:i:4:p:618-632

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Cited by:
  1. Lopcu, Kenan & Dülger, Fikret & Burgaç, Almıla, 2013. "Relative productivity increases and the appreciation of the Turkish lira," Economic Modelling, Elsevier, Elsevier, vol. 35(C), pages 614-621.
  2. Agnès Bénassy-Quéré & Damien Capelle, 2012. "On the inclusion of the Chinese renminbi in the SDR basket," Documents de travail du Centre d'Economie de la Sorbonne, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne 12079, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
  3. Virginie Coudert & Cécile Couharde & Valérie Mignon, 2012. "On currency misalignments within the euro area," Working Papers 2012-07, CEPII research center.
  4. Samba Mbaye, 2013. "Currency undervaluation and growth: Is there a productivity channel?," Economie Internationale, CEPII research center, CEPII research center, issue 133, pages 8-28.
  5. Samba Mbaye, 2012. "Real Exchange Rate Undervaluation and Growth: Is there a Total Factor Productivity Growth Channel?," Working Papers halshs-00687948, HAL.
  6. Matteo Salto & Alessandro Turrini, 2010. "427 - Comparing alternative methodologies for real exchange rate assessment - Matteo Salto and Aless," European Economy - Economic Papers, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission 427, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.

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