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Filtering the Beer

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Author Info

  • Peter B. Clark
  • Ronald MacDonald

Abstract

In this paper we extend the BEER (Behavioral Equilibrium Exchange Rate) approach which identifies an estimated equilibrium relationship between the real exchange rate and economic fundamentals. Here the economic fundamentals are decomposed using Johansen cointegration methods into transitory and permanent components, with the latter used to estimate the Permanent Equilibrium Exchange Rate, or PEER, for the U.S. and Canadian dollars and the pound sterling. The BEER and the PEER move closely together for the U.S. and Canadian dollars and generally track the actual exchange rate. By contrast, for the pound sterling the BEER and the PEER diverge sharply, with the latter following the actual exchange rate quite closely.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 00/144.

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Length: 38
Date of creation: 01 Aug 2000
Date of revision:
Handle: RePEc:imf:imfwpa:00/144

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Related research

Keywords: Real effective exchange rates; exchange rate; exchange rates; real exchange rate; correlation; effective exchange rates; real effective exchange rate; statistical analysis; effective exchange rate; heteroscedasticity; equations; foreign exchange markets; random walk; significance levels; number of variables; equation; cointegration; real exchange rates; standard errors; statistic; nominal exchange rate; explanatory power; equilibrium exchange rate; correlations; home currency; statistics; exchange market intervention; autocorrelation; covariance; real exchange rate fluctuations; foreign exchange; factor analysis; econometrics; time series; exchange markets; constant term; exchange rate fluctuations; exchange rate economics; statistical inference; real variables; overvalued exchange rate; exchange rate policy; exchange rate behavior; calibration; exchange rate system; hypothesis testing;

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