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The Exchange Rate Macroeconomic Balance Approach: New Methodology and Results for the Euro, the Dollar, the Yen and the Pound Sterling

  • Didier Borowski

    ()

  • Cecile Couharde

    ()

This paper presents an extension of the macroeconomic exchange rate balance approach. This extension comprises two new aspects. Firstly, it is based on a multinational framework which allows for macroeconomic linkages between countries. Secondly, it uses a procedure that does not require a full modeling of the world economy to derive a consistent set of equilibrium exchange rates. The findings reveal that, in 2001, the dollar was overvalued against the euro and the yen. The paper also shows that this result depends heavily on the chosen notion of current account sustainability. Copyright Kluwer Academic Publishers 2003

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File URL: http://hdl.handle.net/10.1023/A:1022314013924
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Article provided by Springer in its journal Open Economies Review.

Volume (Year): 14 (2003)
Issue (Month): 2 (April)
Pages: 169-190

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Handle: RePEc:kap:openec:v:14:y:2003:i:2:p:169-190
Contact details of provider: Web page: http://www.springerlink.com/link.asp?id=100323

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  1. Enrique Alberola & Susana G. Cervero & Humberto Lopez & Angel Ubide, 2000. "Global Equilibrium Exchange Rates: Euro, Dollar, "Ins," "Outs," and Other Major Currencies in a Panel Cointegration Framework," Econometric Society World Congress 2000 Contributed Papers 0051, Econometric Society.
  2. Vincent Koen & Laurence Boone & Alain de Serres & Nicola Fuchs, 2001. "Tracking the Euro," OECD Economics Department Working Papers 298, OECD Publishing.
  3. Peter Isard & Hamid Faruqee, 1998. "Exchange Rate Assessment; Extension of the Macroeconomic Balance Approach," IMF Occasional Papers 167, International Monetary Fund.
  4. Gian Maria Milesi-Ferrett & Assaf Razin, 1996. "Sustainability of Persistent Current Account Deficits," NBER Working Papers 5467, National Bureau of Economic Research, Inc.
  5. Carsten Detken & Alistair Dieppe & Jér�me Henry & Frank Smets & Carmen Marin, 2002. "Determinants of the Effective Real Exchange Rate of the Synthetic Euro: Alternative Methodological Approaches," Australian Economic Papers, Wiley Blackwell, vol. 41(4), pages 404-436, December.
  6. Catherine L. Mann, 1999. "Is the U.S. Trade Deficit Sustainable?," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 47, March.
  7. Didier Borowski & Cecile Couharde, 1999. "Quelle parite d'equilibre pour l'euro ?," Economie Internationale, CEPII research center, issue 77, pages 21-44.
  8. John Williamson, 1994. "Estimating Equilibrium Exchange Rates," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 17, March.
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