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On Currency Misalignments within the Euro Area

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  • Virginie Coudert
  • Cécile Couharde
  • Valérie Mignon

Abstract

Although nominal parities have been completely fixed within the euro area since the launch of the single currency, real effective exchange rates have continued to vary under the effect of inflation disparities, exhibiting a strong appreciation in the peripheral countries. In this paper, we assess real exchange rate misalignments for euro area countries by using a Behavioral Equilibrium Exchange Rate (BEER) approach on the period 1980-2010. The results show that the peripheral member countries have been suffering from increasingly overvalued exchange rates since the mid-2000s, as their real appreciation has not stemmed from improving fundamentals in terms of productivity or external position. In addition, currency misalignments have been increased on average for all euro area countries since monetary union, while becoming more persistent. More worryingly, our findings highlight different patterns across members, as misalignments have been larger and more persistent in peripheral countries than in core countries.

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Bibliographic Info

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

Volume (Year): 21 (2013)
Issue (Month): 1 (02)
Pages: 35-48

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Handle: RePEc:bla:reviec:v:21:y:2013:i:1:p:35-48

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References

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  1. Enrique Alberola, 2005. "Misalignment, Liabilities Dollarization And Exchange Rate Adjustment In Latin America," International Finance, EconWPA 0507005, EconWPA.
  2. Agnès Bénassy-Quéré & Sophie Béreau & Valérie Mignon, 2010. "On the Complementarity of Equilibrium Exchange-Rate Approaches," Review of International Economics, Wiley Blackwell, Wiley Blackwell, vol. 18(4), pages 618-632, 09.
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  5. Sebastian Barnes & Jeremy Lawson & Artur Radziwill, 2010. "Current Account Imbalances in the Euro Area: A Comparative Perspective," OECD Economics Department Working Papers 826, OECD Publishing.
  6. Agnès Bénassy-Quéré & Sophie Béreau & Valérie Mignon, 2009. "Robust Estimations Of Equilibrium Exchange Rates Within The G20: A Panel Beer Approach," Scottish Journal of Political Economy, Scottish Economic Society, Scottish Economic Society, vol. 56(5), pages 608-633, November.
  7. Bussière, Matthieu & Chudik, Alexander & Mehl, Arnaud, 2011. "Does the euro make a difference? Spatio-temporal transmission of global shocks to real effective exchange rates in an infinite VAR," Working Paper Series, European Central Bank 1292, European Central Bank.
  8. Kao, Chihwa, 1999. "Spurious regression and residual-based tests for cointegration in panel data," Journal of Econometrics, Elsevier, Elsevier, vol. 90(1), pages 1-44, May.
  9. Pedroni, Peter, 2004. "Panel Cointegration: Asymptotic And Finite Sample Properties Of Pooled Time Series Tests With An Application To The Ppp Hypothesis," Econometric Theory, Cambridge University Press, Cambridge University Press, vol. 20(03), pages 597-625, June.
  10. Guenter W. Beck & Kirstin Hubrich & Massimiliano Marcellino, 2009. "Regional inflation dynamics within and across euro area countries and a comparison with the United States," Economic Policy, CEPR;CES;MSH, CEPR;CES;MSH, vol. 24, pages 141-184, 01.
  11. Se-Eun Jeong & Jacques Mazier & Jamel Saadaoui, 2010. "Exchange Rate Misalignments at World and European Levels: a FEER Approach," Post-Print, HAL halshs-00435836, HAL.
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Citations

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Cited by:
  1. Samba Mbaye, 2012. "Beggar-thy-Neighbor Effects of Currency Undervaluation: Is China the Tip of the Iceberg?," Working Papers halshs-00761380, HAL.
  2. Vincent Duwicquet & Jacques Mazier & Jamel Saadaoui, 2012. "Désajustements de change, fédéralisme budgétaire et redistribution : comment s'ajuster en union monétaire," CEPN Working Papers, HAL halshs-00735142, HAL.
  3. Riccardo Magnani & Luca Piccoli & Martine Carré & Amedeo Spadaro, 2013. "Would a real depreciation of the euro improve the French economy?," DEA Working Papers, Universitat de les Illes Balears, Departament d'Economía Aplicada 60, Universitat de les Illes Balears, Departament d'Economía Aplicada.
  4. Couharde, Cécile & Coulibaly, Issiaka & Guerreiro, David & Mignon, Valérie, 2013. "Revisiting the theory of optimum currency areas: Is the CFA franc zone sustainable?," Journal of Macroeconomics, Elsevier, Elsevier, vol. 38(PB), pages 428-441.
  5. Coulibaly, Issiaka & Gnimassoun, Blaise, 2013. "Optimality of a monetary union: New evidence from exchange rate misalignments in West Africa," Economic Modelling, Elsevier, Elsevier, vol. 32(C), pages 463-482.
  6. Rodrigo Caputo & Mariel Siravegna, 2014. "RER Appreciation After the Great Recession: Misalignment or Fundamental Correction?," Working Papers Central Bank of Chile, Central Bank of Chile 718, Central Bank of Chile.
  7. Saadaoui, Jamel, 2012. "Déséquilibres globaux, taux de change d’équilibre et modélisation stock-flux cohérente
    [Global Imbalances, Equilibrium Exchange Rates and Stock-Flow Consistent Modelling]
    ," MPRA Paper 51332, University Library of Munich, Germany.
  8. Vincent Duwicquet & Jacques Mazier & Jamel Saadaoui, 2012. "Exchange Rate Misalignments, Fiscal Federalism and Redistribution: How to Adjust in a Monetary Union," Post-Print, HAL halshs-00848886, HAL.
  9. Luigi Bonatti & Andrea Fracasso, 2013. "The German Model and the European Crisis," Journal of Common Market Studies, Wiley Blackwell, Wiley Blackwell, vol. 51(6), pages 1023-1039, November.
  10. Benjamin Carton & Karine Hervé, 2013. "Is There any Rebalancing in the Euro Area?," Working Papers 2013-32, CEPII research center.

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