How frequent a BEER? Assessing the impact of data frequency on real exchange rate misalignment estimation

This article explores the robustness of Behavioural Equilibrium Exchange Rate models, employed to estimate real effective exchange rate misalignments, to the frequency of the underlying data. It compares misalignments stemming from an annual model, estimated since 1980, and a comparable quarterly model, estimated since 1999. The two sets of estimates are similar. Moreover, the in‐sample power of quarterly REER misalignments in explaining subsequent REER developments is higher than that of the annual estimates. This article therefore suggests that the “optimal” frequency of a BEER model depends on whether its resulting estimates are employed for research purposes or for policy‐making activities.