Estimating Consistent Fundamental Equilibrium Exchange Rates
AbstractThis paper sets forth a new methodology for obtaining a consistent set of exchange rate realignments needed to accomplish international adjustment in current account imbalances to reach fundamental equilibrium exchange rates (FEERs). The approach is named the symmetric matrix inversion method (SMIM). It is symmetric in that ir treats all countries considered equally rather than seeking exact adjustment for the United States and obtaining other adjustments residually. Country-specific impact parameters based on assumed trade elasticities are applied to a target set of changes in current accounts as percentages of GDP to obtain a corresponding set of target changes in real effective (trade-weighted) exchange rates. A matrix inversion technique is then applied to identify the corresponding set of changes in bilateral exchange rates against the dollar needed to approach as closely as possible the target set of effective exchange rate changes.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Peterson Institute for International Economics in its series Working Paper Series with number WP08-6.
Date of creation: Jul 2008
Date of revision:
Exchange Rates; Current Account Adjustment; Dollar;
Find related papers by JEL classification:
- F31 - International Economics - - International Finance - - - Foreign Exchange
- F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-08-06 (All new papers)
- NEP-CBA-2008-08-06 (Central Banking)
- NEP-OPM-2008-08-06 (Open Economy Macroeconomics)
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.:
- William R. Cline, 1995. "International Economic Policy in the 1990s," MIT Press Books, The MIT Press, edition 1, volume 1, number 026203221x, December.
- William R. Cline, 2005. "United States as a Debtor Nation, The," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 3993.
- William R. Cline & John Williamson, 2008. "New Estimates of Fundamental Equilibrium Exchange Rates," Policy Briefs PB08-7, Peterson Institute for International Economics.
- Huang, Huichou & MacDonald, Ronald & Zhao, Yang, 2012. "Global Currency Misalignments, Crash Sensitivity, and Downside Insurance Costs," MPRA Paper 53745, University Library of Munich, Germany, revised 18 Nov 2013.
- Luigi Bonatti & Andrea Fracasso, 2009. "The evolution of the Sino-American Co-dependency: modelling a regime switch in a growth setting," Department of Economics Working Papers 0905, Department of Economics, University of Trento, Italia.
- Jamel Saadaoui & Jacques Mazier & Nabil Aflouk, 2013.
"On the determinants of exchange rate misalignments,"
Applied Economics Letters,
Taylor & Francis Journals, vol. 20(18), pages 1608-1610, December.
- Saadaoui, Jamel & Mazier, Jacques & Aflouk, Nabil, 2013. "On the Determinants of Exchange Rate Misalignments," MPRA Paper 47481, University Library of Munich, Germany.
- Marçal, Emerson Fernandes, 2013. "Exchange rate misalignments, interdependence, crises, and currency wars: an empirical assessment," Textos para discussÃ£o 348, Escola de Economia de São Paulo, Getulio Vargas Foundation (Brazil).
- Se-Eun Jeong & Jacques Mazier & Jamel Saadaoui, 2010.
"Exchange Rate Misalignments at World and European Levels: a FEER Approach,"
- Se-Eun Jeong & Jacques Mazier & Jamel Saadaoui, 2010. "Exchange Rate Misalignments at World and European Levels: a FEER Approach," Economie Internationale, CEPII research center, issue 121, pages 25-58.
- Carton, Benjamin & Hervé, Karine, 2012.
"Estimation of consistent multi-country FEERs,"
Elsevier, vol. 29(4), pages 1205-1214.
- Antonia Lòpez-Villavicencio & Jacques Mazier & Jamel Saadaoui, 2012.
"Temporal Dimension and Equilibrium Exchange Rate: a FEER / BEER Comparison,"
- Lòpez-Villavicencio, Antonia & Mazier, Jacques & Saadaoui, Jamel, 2012. "Temporal dimension and equilibrium exchange rate: A FEER/BEER comparison," Emerging Markets Review, Elsevier, vol. 13(1), pages 58-77.
- repec:hal:wpaper:halshs-00829460 is not listed on IDEAS
- Jamel Saadaoui, 2011.
"Exchange Rate Dynamics and Fundamental Equilibrium Exchange Rates,"
- Jamel Saadaoui, 2011. "Exchange Rate Dynamics and Fundamental Equilibrium Exchange Rates," Economics Bulletin, AccessEcon, vol. 31(3), pages 1993-2005.
- Nabil Aflouk & Jacques Mazier, 2013. "Exchange rate misalignments and economic growth: A threshold panel approach," Economics Bulletin, AccessEcon, vol. 33(2), pages 1333-1347.
- 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.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Peterson Institute webmaster).
If references are entirely missing, you can add them using this form.