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How Robust are Estimated Equilibrium Exchange Rates? A Panel BEER Approach

  • Agnès Bénassy-Quéré
  • Sophie Béreau
  • Valérie Mignon

This paper is concerned with the robustness of equilibrium exchange rate estimations based on the BEER approach for a set of both industrial and emerging countries. The robustness is studied in four directions, successively. First, we investigate the impact of using alternative proxies for relative productivity. Second, we analyze the impact of estimating the equilibrium equation on one single panel covering G20 countries, or separately for G7 and non-G7 countries. Third, we measure the influence of the choice of the numeraire on the derivation of bilateral equilibrium rates. Finally, we study the temporal robustness of the estimations by dropping one or two years from the estimation period. Our main conclusion is that BEER estimations are quite robust to these successive tests, although at one point of time misalignments can differ by several percentage points depending on the methodology. The choice of the productivity proxy is the most sensible one, followed by the country sample. In contrast, the choice of the numeraire and the time sample have a relatively limited impact on estimated misalignments.

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Paper provided by CEPII research center in its series Working Papers with number 2008-01.

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Date of creation: Mar 2008
Date of revision:
Handle: RePEc:cii:cepidt:2008-01
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  1. Im, Kyung So & Pesaran, M. Hashem & Shin, Yongcheol, 2003. "Testing for unit roots in heterogeneous panels," Journal of Econometrics, Elsevier, vol. 115(1), pages 53-74, July.
  2. Agnès Bénassy-Quéré & Sophie Béreau & Valérie Mignon, 2008. "Equilibrium Exchange Rates: a Guidebook for the Euro-Dollar Rate," Working Papers 2008-02, CEPII research center.
  3. Agnès Bénassy-Quéré & Valérie Mignon & Amina Lahrèche, 2008. "Is Asia responsible for exchange-rate misalignments within the G20?," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-00634797, HAL.
  4. Agnès Bénassy-Quéré & Pascale Duran-Vigneron & Amina Lahrèche-Revil & Mignon, Valerie, 2004. "Burden Sharing and Exchange-Rate Misalignments within the Group of Twenty," Working Papers 2004-13, CEPII research center.
  5. Jose De Gregorio & Holger C. Wolf, 1994. "Terms of Trade, Productivity, and the Real Exchange Rate," Working Papers 94-19, New York University, Leonard N. Stern School of Business, Department of Economics.
  6. Agnès Bénassy-Quéré & Amina Lahrèche-Révil & Valérie Mignon, 2006. "World Consistent Equilibrium Exchange Rates," Working Papers 2006-20, CEPII research center.
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