On currency misalignments within the euro area
AbstractAlthough nominal parities have been completely fixed 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 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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Bibliographic InfoPaper provided by University of Paris West - Nanterre la Défense, EconomiX in its series EconomiX Working Papers with number 2012-30.
Length: 25 pages
Date of creation: 2012
Date of revision:
euro area; real equilibrium exchange rates; misalignments; panel cointegration;
Other versions of this item:
- F31 - International Economics - - International Finance - - - Foreign Exchange
- C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-07-01 (All new papers)
- NEP-EEC-2012-07-01 (European Economics)
- NEP-EUR-2012-07-01 (Microeconomic European Issues)
- NEP-MAC-2012-07-01 (Macroeconomics)
- NEP-MON-2012-07-01 (Monetary Economics)
- NEP-OPM-2012-07-01 (Open Economy Macroeconomics)
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