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A Two-Country NATREX Model for the Euro/Dollar

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Author Info
Marianna Belloc ()
Daniela Federici ()
Abstract

This paper develops a NATREX (NATural Real EXchange rate) model for two large economies, the Eurozone and the United States, which are fully specified and allowed to interact. After description of the theoretical framework grounding on dynamic disequilibrium modelling approach in continuous time, we implement empirical analysis. First, we estimate the model in its structural form as a simultaneous nonlinear differential equation system for the 1975-2003 period. Second, we simulate the Euro/USD NATREX series in- and out-of-sample by using parameters estimates. The simulated equilibrium real exchange rate enables us to determine a benchmark against which the dynamics of the actual real exchange rate can be measured.

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Paper provided by CESifo GmbH in its series CESifo Working Paper Series with number CESifo Working Paper No. 2290.

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Date of creation: 2008
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Handle: RePEc:ces:ceswps:_2290

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Related research
Keywords: NATREX equilibrium exchange rate Euro/USD structural approach continuous time econometrics misalignment

Find related papers by JEL classification:
F31 - International Economics - - International Finance - - - Foreign Exchange
F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
F47 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Forecasting and Simulation

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This page was last updated on 2008-7-30.

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