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Models of Equilibrium Real Exchange Rates Revisited: A Selective Review of the Literature

  • Ramkishen S. Rajan

    ()

  • Reza Y. Siregar

    ()

One of the more important concepts in open macroeconomics is the “equilibrium real exchange rate†(ERER). Real exchange rate misalignments are argued to have been the cause of loss of competitiveness and growth slowdowns and eventual currency crises (in the event of sustained overvaluations), overheating (in the event of sustained undervaluation), sectoral misallocation of resources, and global macroeconomic imbalances. This paper examines the underlying concepts, assumptions and analytical bases of commonly employed models of the equilibrium real exchange rate and the manner in which they are usually computed (i.e. operationalized) as well as their shortcomings.

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Paper provided by eSocialSciences in its series Working Papers with number id:1198.

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Date of creation: Sep 2007
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Handle: RePEc:ess:wpaper:id:1198
Note: Working Papers
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  1. Anderson, Kym & Martin, Will & van der Mensbrugghe, Dominique, 2005. "Would Multilateral Trade Reform Benefit Sub-Saharan Africans?," CEPR Discussion Papers 5049, C.E.P.R. Discussion Papers.
  2. Pontines, Victor & Siregar, Reza, 2008. "Fundamental pitfalls of exchange market pressure-based approaches to identification of currency crises," International Review of Economics & Finance, Elsevier, vol. 17(3), pages 345-365.
  3. Kym Anderson, 2005. "On the Virtues of Multilateral Trade Negotiations," Centre for International Economic Studies Working Papers 2005-15, University of Adelaide, Centre for International Economic Studies.
  4. Will Martin & Kym Anderson, 2006. "Agricultural Trade Reform and the Doha Development Agenda," World Bank Publications, The World Bank, number 6889, December.
  5. Reza Y. Siregar & Victor Pontines, 2005. "External Debt and Exchange Rate Overshooting: The Case of Selected East Asian Countries," School of Economics Working Papers 2005-14, University of Adelaide, School of Economics.
  6. Alfons Palangkaraya & Paul Jensen & Elizabeth Webster, 2006. "Patent Examination Decisions and Strategic Trade Behavior," Centre for International Economic Studies Working Papers 2006-03, University of Adelaide, Centre for International Economic Studies.
  7. Kym Anderson & Will Martin & Dominique van der Mensbrugghe, 2006. "Doha Merchandise Trade Reform: What Is at Stake for Developing Countries?," World Bank Economic Review, World Bank Group, vol. 20(2), pages 169-195.
  8. Victor Pontines & Reza Siregar, 2006. "Exchange Market Intervention and Evidence of Post-Crisis Flexible Exchange Rate Regimes in Selected East Asian Economies," Centre for International Economic Studies Working Papers 2006-01, University of Adelaide, Centre for International Economic Studies.
  9. Anderson, Kym & Martin, Will & van der Mensbrugghe, Dominique, 2005. "Distortions to world trade: impacts on agricultural markets and farm incomes," Policy Research Working Paper Series 3736, The World Bank.
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