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World-consistent equilibrium exchange rates

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  • Bénassy-Quéré, Agnès
  • Lahrèche-Révil, Amina
  • Mignon, Valérie

Abstract

This paper proposes a systematic analysis of the problem of world consistency when deriving equilibrium exchange rates. World inconsistency can arise for two reasons. First, real effective misalignments of currencies out of the considered sample are implicitly assumed to be the mirror image of those of the currencies under review. Second, only NÂ -Â 1 independent bilateral equilibrium exchange rates can be derived from a set of N effective rates. Here we measure the extent of these two problems by estimating equilibrium exchange rates for 15 countries of the G20 in effective as well as bilateral terms and by varying the assumptions concerning the rest of the world (RoW) and the numeraire currency. Our results show that the way the rest of the world is tackled has a major impact on the calculation of effective misalignments and especially bilateral misalignments.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of the Japanese and International Economies.

Volume (Year): 25 (2011)
Issue (Month): 2 (June)
Pages: 12-32

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Handle: RePEc:eee:jjieco:v:25:y:2011:i:2:p:12-32

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Web page: http://www.elsevier.com/locate/inca/622903

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Keywords: Equilibrium exchange rates BEER approach World consistency;

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Cited by:
  1. Carton, Benjamin & Hervé, Karine, 2012. "Estimation of consistent multi-country FEERs," Economic Modelling, Elsevier, Elsevier, vol. 29(4), pages 1205-1214.
  2. Baak, SaangJoon, 2012. "Measuring misalignments in the Korean exchange rate," Japan and the World Economy, Elsevier, Elsevier, vol. 24(4), pages 227-234.
  3. GNABO, Jean-Yves & LAURENT, Sébastien & LECOURT, Christelle, . "Does transparency in central bank intervention policy bring noise to the FX market? The case of the Bank of Japan," CORE Discussion Papers RP, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) -2136, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  4. Xinhua He & Duo Qin & Yimeng Liu, 2012. "Exchange rate misalignments: a comparison of China today against recent historical experiences of Japan, Germany, Singapore and Taiwan," Journal of Chinese Economic and Business Studies, Taylor & Francis Journals, Taylor & Francis Journals, vol. 10(3), pages 247-266, May.
  5. Blaise Gnimassoun & Valérie Mignon, 2013. "Current-Account Adjustments and Exchange-Rate Misalignments," Working Papers, CEPII research center 2013-29, CEPII research center.
  6. Agnès Bénassy-Quéré & Sophie Béreau & Valérie Mignon, 2008. "How Robust are Estimated Equilibrium Exchange Rates? A Panel BEER Approach," Working Papers, CEPII research center 2008-01, CEPII research center.
  7. Claudiu T Albulescu & Daniel Goyeau, 2011. "Estimation of equilibrium exchange rate in CEECs: a rolling window approach," Economics Bulletin, AccessEcon, vol. 31(2), pages 1212-1222.
  8. Zhibai, Zhang, 2012. "A Simple Model and Its Application in the Valuation of Five Asian Real Exchange Rates," MPRA Paper 40953, University Library of Munich, Germany.

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