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Burden Sharing and Exchange-Rate Misalignments within the Group of Twenty

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Author Info
Agnes Benassy-Quere
Pascale Duran-Vigneron
Amina Lahreche-Revil
Valerie Mignon

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Abstract

We present equilibrium effective exchange rates for a set of industrial as well as developing countries, based on a methodology close to that used by Alberola et al. (2002), where the real exchange rate is jointly determined by external balance as well as internal balance. We then calculate equilibrium bilateral exchange rates against the US dollar. Finally, we investigate the size of bilateral misalignments depending on the number of flexible currencies within the G-20. To derive the full set of bilateral misalignments, we turn out the solution of adding an n+1th currency standing for the rest of the world, as this would imply G-20 countries transferring the burden of overall adjustment to third countries. Using various alternative numeraires, we show the diagnosis of bilateral misalignments to be robust for most currencies. The lack of adjustment in some countries is shown to have an ambiguous effect on the adjustments beared by flexible currencies.

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Paper provided by CEPII research center in its series Working Papers with number 2004-13.

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Date of creation: Sep 2004
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Handle: RePEc:cii:cepidt:2004-13

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Related research
Keywords: equilibrium exchange rate international macro-economic imbalances Group of the Twenty debt exchange rate current accounts

Find related papers by JEL classification:
F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration

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  1. Carsten Detken & Alistair Dieppe & Jerome Henry & Frank Smets & Carmen Marin, 2002. "Model uncertainty and the equilibrium value of the real effective euro exchange rate," Working Paper Series 160, European Central Bank. [Downloadable!]
  2. MacDonald, Ronald, 1998. "What determines real exchange rates?: The long and the short of it," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 8(2), pages 117-153, June. [Downloadable!] (restricted)
  3. Stock, James H & Watson, Mark W, 1993. "A Simple Estimator of Cointegrating Vectors in Higher Order Integrated Systems," Econometrica, Econometric Society, vol. 61(4), pages 783-820, July. [Downloadable!] (restricted)
    Other versions:
  4. Levin, Andrew & Lin, Chien-Fu & James Chu, Chia-Shang, 2002. "Unit root tests in panel data: asymptotic and finite-sample properties," Journal of Econometrics, Elsevier, vol. 108(1), pages 1-24, May. [Downloadable!] (restricted)
    Other versions:
  5. Enrique Alberola & Susana Garcia-Cervero & Humberto López & Angel Ubide, 2005. "Quo vadis Euro?," International Finance 0507004, EconWPA. [Downloadable!]
  6. Im, Kyung So & Pesaran, M. Hashem & Shin, Yongcheol, 2003. "Testing for unit roots in heterogeneous panels," Journal of Econometrics, Elsevier, vol. 115(1), pages 53-74, July. [Downloadable!] (restricted)
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  7. Peter C.B. Phillips & Bruce E. Hansen, 1988. "Statistical Inference in Instrumental Variables," Cowles Foundation Discussion Papers 869R, Cowles Foundation, Yale University, revised Apr 1989. [Downloadable!]
  8. Andrew Levin & Chien-Fu Lin, 1993. "Unit Root Tests in Panel Data: New Results," University of California at San Diego, Economics Working Paper Series 93-56, Department of Economics, UC San Diego. [Downloadable!]
  9. Enrique Alberola, 2005. "Misalignment, Liabilities Dollarization And Exchange Rate Adjustment In Latin America," International Finance 0507005, EconWPA. [Downloadable!]
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Oscar Bernal, 2006. "Do interactions between political authorities and central banks influence FX interventions? Evidence from Japan," Working Papers DULBEA 06-03.RS, Université libre de Bruxelles, Department of Applied Economics (DULBEA). [Downloadable!]
  2. Michel Beine & Oscar Bernal & Jean-Yves Gnabo & Christelle Lecourt, 2007. "Intervention Policy of the BoJ: a Unified Approach," Working Papers of CREFI-LSF (Centre of Research in Finance - Luxembourg School of Finance) 07-19, CREFI-LSF, University of Luxembourg. [Downloadable!]
  3. Jorge Carrera & Romain Restout, 2008. "Long Run Determinants of Real Exchange Rates in Latin America," Working Papers 0811, Groupe d'Analyse et de Théorie Economique (GATE), Centre national de la recherche scientifique (CNRS), Université Lyon 2, Ecole Normale Supérieure. [Downloadable!]
  4. Sebastian Edwards, 2005. "Is the U.S. Current Account Deficit Sustainable? And If Not, How Costly is Adjustment Likely To Be?," NBER Working Papers 11541, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  5. Michel Beine & Oscar Bernal & Jean-Yves Gnabo & Christelle Lecourt, 2006. "Intervention Policy of the BoJ: A unified approach," Working Papers DULBEA 06-15.RS, Université libre de Bruxelles, Department of Applied Economics (DULBEA). [Downloadable!]
    Other versions:
  6. Antonia López Villavicencio, 2006. "Real equilibrium exchange rates. A panel data approach for advanced and emerging economies," Working Papers wpdea0605, Department of Applied Economics at Universitat Autonoma of Barcelona. [Downloadable!]
  7. Sebastian Edwards, 2005. "The end of large current account deficits : 1970-2002 : are there lessons for the United States?," Proceedings, Federal Reserve Bank of Kansas City, issue Aug, pages 205-268. [Downloadable!]
    Other versions:
  8. Antoine Bouveret & Sana Mestiri & Henri Sterdyniak, 2006. "The renminbi equilibrium exchange rate: an agnostic view," Documents de Travail de l'OFCE 2006-13, Observatoire Francais des Conjonctures Economiques (OFCE). [Downloadable!]
  9. Oscar Bernal & Jean-Yves Gnabo, 2007. "Talks, financial operations or both? Generalizing central banks’ FX reaction functions," Working Papers DULBEA 07-03.RS, Université libre de Bruxelles, Department of Applied Economics (DULBEA). [Downloadable!]
  10. Michel Beine & Paul De Grauwe & Marianna Grimaldi, 2005. "The Impact of FX Central Bank Intervention in a Noise Trading Framework," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
  11. Michel Beine & Oscar Bernal, 2005. "Why do central banks intervene secretly? Preliminary evidence from the BoJ," Working Papers DULBEA 05-09.RS, Université libre de Bruxelles, Department of Applied Economics (DULBEA). [Downloadable!]
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