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Estimation of Consistent Multi-Country FEERs

  • Benjamin Carton
  • Karine Hervé

Most studies on equilibrium exchange rates focus on a limited number of G7 countries. But in a situation of world imbalances, emerging countries can no longer be excluded. The study of all equilibrium exchange rates is delicate. First, the trade model has to be balanced at the aggregate level. This paper suggests a method to achieve world balance both in volume and in value. Second, the N-1 bilateral exchange rates cannot ensure that the N areas will reach their macroeconomic equilibrium simultaneously. This paper examines the existing solutions to solve the N-1 problem and proposes an alternative which minimizes the distance to the current-account targets. Finally, in order to compare the relevance of the different methodologies, FEERs are calculated for 19 industrialized and developing countries.

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Paper provided by CEPII research center in its series Working Papers with number 2010-02.

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Date of creation: Feb 2010
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Handle: RePEc:cii:cepidt:2010-02
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