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Behavioural equilibrium exchange rate estimates and implied exchange rate adjustments for ten countries

  • Ronald MacDonald
  • Preethike Dias

In this paper we estimate the behaviour equilibrium exchange rates (BEERs) of Clark and MacDonald (1999) for the effective exchange rates of ten industrialised and emerging market economies that rank within the top 15 contributory economies to global imbalances. The sample period is 1988, quarter 1 to 2006 quarter 1. The conditioning variables used in the estimation of the BEER are: net exports as a proportion of GDP, a real interest differential, a terms of trade differential and GDP per capita differential. The ‘foreign’ magnitudes in the differentials were constructed using the trade weights used to construct the effective exchange rates. Using both single country and panel econometric methods, plausible BEER estimates were reported. These estimates were then used to back out the required exchange rate adjustments necessary to fulfil the three scenarios of Williamson (2006). The ball park currency adjustments required are in the range of 27.3 to 46.6 per cent devaluations for the Chinese renminbi, 5 to 11 per cent for the US dollar, approximately 6 per cent for the Japanese yen and no adjustment for the euro or Sterling.

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Paper provided by Business School - Economics, University of Glasgow in its series Working Papers with number 2007_12.

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Date of creation: Jun 2007
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Handle: RePEc:gla:glaewp:2007_12
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  1. Philip Lane & Gian Maria Milesi-Ferretti, 2001. "THE EXTERNAL WEALTH OF NATIONS: Measures of Foreign Assets and Liabilities For Industrial and Developing Countries," Trinity Economics Papers 20014, Trinity College Dublin, Department of Economics.
  2. John Williamson, 1994. "Estimating Equilibrium Exchange Rates," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 17, March.
  3. Johansen, Soren, 1995. "Likelihood-Based Inference in Cointegrated Vector Autoregressive Models," OUP Catalogue, Oxford University Press, number 9780198774501, March.
  4. Hamid Faruqee, 1995. "Long-Run Determinants of the Real Exchange Rate: A Stock-Flow Perspective," IMF Staff Papers, Palgrave Macmillan, vol. 42(1), pages 80-107, March.
  5. MacDonald, Ronald & Ricci, Luca Antonio, 2007. "Real exchange rates, imperfect substitutability, and imperfect competition," Journal of Macroeconomics, Elsevier, vol. 29(4), pages 639-664, December.
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