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Price and cost competitiveness misalignments of the euro area and of its main economies according to a quarterly BEER model, 1999-2017

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  • Claire Giordano

    (Banca d�Italia)

Abstract

This study first assesses recent misalignments of the real effective exchange rate (REER) of the euro area and of the Harmonized Competitiveness Indicators (HCIs) of its main economies, based on a quarterly Behavioural Equilibrium Exchange Rate (BEER) model. Next, it draws a comparison with comparable estimates published by the IMF and by CEPII. The BEER model here employed was first put forward by Fidora, Giordano and Schmitz (2017; 2018) and enables the assessment of the departure of actual REERs and HCIs from values consistent with underlying economic fundamentals (i.e. �equilibrium� values). The quarterly model has now been extended to cover a longer time span (1999-2017) and refined by employing new data sources, in particular relative to producer price indices, one of five alternative price/cost indicators used to derive the REERs and HCIs. There is evidence of a modest overvaluation of the euro-area REER in 2017, partly linked to the nominal appreciation of its currency in the second half of the year.

Suggested Citation

  • Claire Giordano, 2018. "Price and cost competitiveness misalignments of the euro area and of its main economies according to a quarterly BEER model, 1999-2017," Questioni di Economia e Finanza (Occasional Papers) 444, Bank of Italy, Economic Research and International Relations Area.
    • Handle: RePEc:bdi:opques:qef_444_18
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    Cited by:

    1. Alberto Felettigh & Claire Giordano, 2018. "Rethinking prices and markets underlying price-competitiveness indicators," Questioni di Economia e Finanza (Occasional Papers) 447, Bank of Italy, Economic Research and International Relations Area.
    2. Silvia Fabiani & Alberto Felettigh & Claire Giordano & Roberto Torrini, 2019. "Making room for new competitors. A comparative perspective on Italy’s exports in the euro-area market," Questioni di Economia e Finanza (Occasional Papers) 530, Bank of Italy, Economic Research and International Relations Area.
    3. Claire Giordano, 2020. "An update of the Bank of Italy methodology underlying the estimation of price-competitiveness misalignments," Questioni di Economia e Finanza (Occasional Papers) 556, Bank of Italy, Economic Research and International Relations Area.
    4. Claire Giordano, 2021. "How frequent a BEER? Assessing the impact of data frequency on real exchange rate misalignment estimation," Scottish Journal of Political Economy, Scottish Economic Society, vol. 68(3), pages 365-404, July.

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    More about this item

    Keywords

    price competitiveness; cost competitiveness; real effective exchange rate; equilibrium exchange rate; misalignments;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • F00 - International Economics - - General - - - General
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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