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A Two-Country NATREX Model for the Euro/Dollar

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  • 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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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2008/wp-cesifo-2008-04/cesifo1_wp2290.pdf
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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 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;

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Cited by:
  1. Nikolaos Giannellis & Minoas Koukouritakis, 2011. "Behavioural equilibrium exchange rate and total misalignment: evidence from the euro exchange rate," Empirica, Springer, vol. 38(4), pages 555-578, November.
  2. Daniela Federici & Giancarlo Gandolfo, 2011. "The Euro/Dollar Exchange Rate: Chaotic or Non-Chaotic?," DEGIT Conference Papers c016_035, DEGIT, Dynamics, Economic Growth, and International Trade.
  3. Giancarlo Gandolfo, 2012. "The Tobin Tax in a Continuous-time Non-linear Dynamic Model of the Exchange rate," ASSRU Discussion Papers 1221, ASSRU - Algorithmic Social Science Research Unit.
  4. Federici, Daniela & Gandolfo, Giancarlo, 2012. "The Euro/Dollar exchange rate: Chaotic or non-chaotic? A continuous time model with heterogeneous beliefs," Journal of Economic Dynamics and Control, Elsevier, vol. 36(4), pages 670-681.

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