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Models of Equilibrium Real Exchange Rates Revisited: A Selective Review of the Literature

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Abstract

One of the more important concepts in open macroeconomics is the “equilibrium real exchange rate†(ERER). Real exchange rate misalignments are argued to have been the cause of loss of competitiveness and growth slowdowns and eventual currency crises (in the event of sustained overvaluations), overheating (in the event of sustained undervaluation), sectoral misallocation of resources, and global macroeconomic imbalances. This paper examines the underlying concepts, assumptions and analytical bases of commonly employed models of the equilibrium real exchange rate and the manner in which they are usually computed (i.e. operationalized) as well as their shortcomings.

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  • Reza Y. Siregar, 2007. "Models of Equilibrium Real Exchange Rates Revisited: A Selective Review of the Literature," Working Papers id:1198, eSocialSciences.
  • Handle: RePEc:ess:wpaper:id:1198
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    8. Hasanov, Fakhri, 2009. "Analyzing price level in a booming economy: the case of Azerbaijan," MPRA Paper 29555, University Library of Munich, Germany.
    9. Kym Anderson & Will Martin & Dominique Mensbrugghe, 2010. "China, the WTO and the Doha Agenda," Palgrave Macmillan Books, in: David Greenaway & Chris Milner & Shujie Yao (ed.), China and the World Economy, chapter 1, pages 1-18, Palgrave Macmillan.
    10. Hasanov, Fakhri & Huseynov, Fariz, 2009. "Real Exchange Rate Misalignment in Azerbaijan," MPRA Paper 29561, University Library of Munich, Germany.
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    19. Brankica Pažun & Zlatko Langović & Ana Langovic Milićević, 2016. "Equilibrium Real Exchange Rate Assessment of the Serbian Dinar: The MB approach," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(1), pages 76-87, March.
    20. Darryl McLeod & Elitza Mileva, 2011. "Real Exchange Rates and Growth Surges," Fordham Economics Discussion Paper Series dp2011-04, Fordham University, Department of Economics.
    21. Ramos-Herrera María del Carmen, 2022. "How Equilibrium Exchange Rate Misalignments Influence on Economic Growth? Evidence for European Countries," Economics - The Open-Access, Open-Assessment Journal, De Gruyter, vol. 16(1), pages 199-211, January.
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    More about this item

    Keywords

    real exchange rates; ERER; macroeconomic imbalances;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements

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