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427 - Comparing alternative methodologies for real exchange rate assessment - Matteo Salto and Aless

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  • Matteo Salto
  • Alessandro Turrini

Abstract

Summary for non-specialistsThis paper compares alternative methodologies for estimating real exchange rate misalignment for EU countries. It is shown that current account-based approaches (based on NFA stabilisation and current account norms) and relative-price based approaches (BEER and PPP-based) deliver broadly consistent assessments, however sometimes differences are non-negligible. Current account-based misalignment appears to be driven to a larger extent by shocks affecting domestic absorption and national savings and quite often becomes manifest before price-based misalignment. All misalignment measures, and especially the BEER, are related with medium-term developments in real exchange rates, while only current-account based misalignment is a significant predictor of forthcoming current account developments.

Suggested Citation

  • Matteo Salto & Alessandro Turrini, 2010. "427 - Comparing alternative methodologies for real exchange rate assessment - Matteo Salto and Aless," European Economy - Economic Papers 2008 - 2015 427, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
  • Handle: RePEc:euf:ecopap:0427
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    File URL: http://ec.europa.eu/economy_finance/publications/economic_paper/2010/pdf/ecp427_en.pdf
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    References listed on IDEAS

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    1. Agnès Bénassy-Quéré & Sophie Béreau & Valérie Mignon, 2010. "On the Complementarity of Equilibrium Exchange-Rate Approaches," Review of International Economics, Wiley Blackwell, vol. 18(4), pages 618-632, September.
    2. Agnès Bénassy-Quéré & Sophie Béreau & Valérie Mignon, 2008. "How Robust are Estimated Equilibrium Exchange Rates? A Panel BEER Approach," Working Papers 2008-01, CEPII research center.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Mariarosaria Comunale, 2017. "A panel VAR analysis of macro-financial imbalances in the EU," Bank of Lithuania Working Paper Series 40, Bank of Lithuania.
    2. repec:taf:apeclt:v:24:y:2017:i:13:p:911-917 is not listed on IDEAS
    3. Benedicta Marzinotto, 2016. "Income Inequality and Macroeconomic Imbalances under EMU," LEQS – LSE 'Europe in Question' Discussion Paper Series 110, European Institute, LSE.
    4. António Afonso & Jorge Silva, 2017. "Current account balance cyclicality," Applied Economics Letters, Taylor & Francis Journals, vol. 24(13), pages 911-917, July.
    5. Comunale, Mariarosaria, 2017. "Dutch disease, real effective exchange rate misalignments and their effect on GDP growth in EU," Journal of International Money and Finance, Elsevier, vol. 73(PB), pages 350-370.
    6. Agnes Benassy-Quere, 2016. "Euro-Area Fiscal Stance: From Theory to Practical Implementation," CESifo Working Paper Series 6040, CESifo Group Munich.
    7. Aaron G Grech & Noel Rapa, "undated". "Trends in Malta’s current account and their underlying causes," CBM Policy Papers PP/03/2016, Central Bank of Malta.
    8. Fidora, Michael & Giordano, Claire & Schmitz, Martin, 2017. "Real exchange rate misalignments in the euro area," Working Paper Series 2108, European Central Bank.
    9. Benedicta Marzinotto, 2017. "Euro area macroeconomic imbalances and their asymmetric reversal: the link between financial integration and income inequality," Economia Politica: Journal of Analytical and Institutional Economics, Springer;Fondazione Edison, vol. 34(1), pages 83-104, April.
    10. Silvia Fabiani & Stefano Federico & Alberto Felettigh, 2016. "Adjusting the external adjustment: cyclical factors and the Italian current account," Questioni di Economia e Finanza (Occasional Papers) 346, Bank of Italy, Economic Research and International Relations Area.
    11. Jorge Silva, 2017. "Are external accounts sustainable in Portugal?," Working Papers REM 2017/21, ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa.

    More about this item

    Keywords

    Real Effective Exchange Rate REER misalignment BEER competitiveness current account norms current account Turrini Salto exchange rate assessment Comparing alternative methodologies;

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements

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