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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 pegged 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 the 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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Paper provided by CEPII research center in its series Working Papers with number 2012-07.

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Date of creation: Apr 2012
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Handle: RePEc:cii:cepidt:2012-07

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Keywords: EURO AREA; REAL EQUILIBRIUM EXCHANGE RATES; MISALIGNMENTS; PANEL COINTEGRATION;

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  1. 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.
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  5. Westerlund, Joakim & Edgerton, David, 2006. "Simple Tests for Cointegration in Dependent Panels with Structural Breaks," Working Papers, Lund University, Department of Economics 2006:13, Lund University, Department of Economics, revised 28 Jan 2007.
  6. Se-Eun Jeong & Jacques Mazier & Jamel Saadaoui, 2010. "Exchange Rate Misalignments at World and European Levels: a FEER Approach," Economie Internationale, CEPII research center, CEPII research center, issue 121, pages 25-58.
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  8. MOON, Hyungsik Roger & PERRON, Benoit., 2002. "Testing for a Unit Root in Panels with Dynamic Factors," Cahiers de recherche, Universite de Montreal, Departement de sciences economiques 2002-18, Universite de Montreal, Departement de sciences economiques.
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  12. Enrique Alberola, 2003. "Misalignment, liabilities dollarization and exchange rate adjustment in Latin America," Banco de Espa�a Working Papers, Banco de Espa�a 0309, Banco de Espa�a.
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Citations

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Cited by:
  1. Duwicquet, Vincent & Mazier, Jacques & Saadaoui, Jamel, 2012. "Désajustements de change, fédéralisme budgétaire et redistribution : comment s’ajuster en union monétaire
    [Exchange Rate Misalignments, Fiscal Federalism and Redistribution: How to Adjust in
    ," MPRA Paper 42858, University Library of Munich, Germany.
  2. Duwicquet, Vincent & Mazier, Jacques & Saadaoui, Jamel, 2012. "Exchange Rate Misalignments, Fiscal Federalism and Redistribution: How to Adjust in a Monetary Union," MPRA Paper 48697, University Library of Munich, Germany.
  3. 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.
  4. Issiaka Coulibaly & Blaise Gnimassoun, 2012. "Optimality of a monetary union : New evidence from exchange rate misalignments in West Africa," EconomiX Working Papers 2012-37, University of Paris West - Nanterre la Défense, EconomiX.
  5. Samba Mbaye, 2012. "Beggar-thy-Neighbor Effects of Currency Undervaluation: Is China the Tip of the Iceberg?," Working Papers, HAL halshs-00761380, HAL.
  6. Cécile Couharde & Issiaka Coulibaly & David Guerreiro & Valérie Mignon, 2012. "Revisiting the theory of optimum currency areas: Is the CFA franc zone sustainable?," EconomiX Working Papers 2012-34, University of Paris West - Nanterre la Défense, EconomiX.
  7. 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.
  8. Benjamin Carton & Karine Hervé, 2013. "Is There any Rebalancing in the Euro Area?," Working Papers, CEPII research center 2013-32, CEPII research center.
  9. 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.
  10. 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.

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