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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

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  • Didier Borowski
  • Cecile Couharde

Abstract

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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  • Didier Borowski & Cecile Couharde, 2003. "The Exchange Rate Macroeconomic Balance Approach: New Methodology and Results for the Euro, the Dollar, the Yen and the Pound Sterling," Open Economies Review, Springer, vol. 14(2), pages 169-190, April.
    • Handle: RePEc:kap:openec:v:14:y:2003:i:2:p:169-190
    DOI: 10.1023/A:1022314013924
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    1. Paul R. Krugman, 1985. "Is the strong dollar sustainable?," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 103-155.
    2. Didier Borowski & Cecile Couharde, 1999. "Quelle parite d'equilibre pour l'euro ?," Economie Internationale, CEPII research center, issue 77, pages 21-44.
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    8. Catherine L. Mann, 1999. "Is the U.S. Trade Deficit Sustainable?," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 47, April.
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