IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Global Imbalances: Should We Use Fundamental Equilibrium Exchange Rates?

  • Jamel Saadaoui

    ()

    (CEPN - Centre d'Economie de l'Université Paris Nord - CNRS : UMR7234 - Université Paris 13 - Université Sorbonne Paris Cité (USPC))

The reduction of global imbalances observed during the climax of crisis is incomplete. In this context, currencies realignments are still proposed to ensure global macroeconomic stability. These realignments are based on equilibrium rates derived from equilibrium exchange rate models. Among these models, we have the fundamental equilibrium exchange rate (FEER) model introduced by Williamson (1994). This approach is often labelled as normative mainly because the return to the equilibrium is not described in the model. If the FEER is not related neither in the short nor in the long to the real exchange rates, we see no clear justification to intervene in foreign exchange markets based on these equilibrium rates. In this case, the FEER is a normative approach and should not be used to reduce global imbalances. This paper provides empirical evidences robust to cross-sectional dependence that the FEER is related to real exchange rate in the long run and thus could be a useful tool to prevent the resurgence of large global imbalances and associated risks.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://halshs.archives-ouvertes.fr/docs/00/75/87/99/PDF/imbalances_and_feers.pdf
Download Restriction: no

Paper provided by HAL in its series CEPN Working Papers with number halshs-00750551.

as
in new window

Length:
Date of creation: 10 Nov 2012
Date of revision:
Handle: RePEc:hal:cepnwp:halshs-00750551
Note: View the original document on HAL open archive server: http://halshs.archives-ouvertes.fr/halshs-00750551
Contact details of provider: Web page: http://hal.archives-ouvertes.fr/

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Chinn, Menzie D. & Prasad, Eswar S., 2003. "Medium-term determinants of current accounts in industrial and developing countries: an empirical exploration," Journal of International Economics, Elsevier, vol. 59(1), pages 47-76, January.
  2. M. Hashem Pesaran, 2006. "Estimation and Inference in Large Heterogeneous Panels with a Multifactor Error Structure," Econometrica, Econometric Society, vol. 74(4), pages 967-1012, 07.
  3. Joakim Westerlund, 2007. "Testing for Error Correction in Panel Data," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 69(6), pages 709-748, December.
  4. Nabil Aflouk & Se-Eun Jeong & Jacques Mazier & Jamel Saadaoui, 2010. "Exchange Rate Misalignments and International Imbalances a FEER Approach for Emerging Countries," Economie Internationale, CEPII research center, issue 124, pages 31-74.
  5. Jamel Saadaoui, 2011. "Exchange Rate Dynamics and Fundamental Equilibrium Exchange Rates," Post-Print halshs-00593674, HAL.
  6. Olivier Blanchard & Gian Maria Milesi-Ferretti, 2012. "(Why) Should Current Account Balances Be Reduced?," IMF Economic Review, Palgrave Macmillan, vol. 60(1), pages 139-150, April.
  7. Rafael E. De Hoyos & Vasilis Sarafidis, 2006. "Testing for cross-sectional dependence in panel-data models," Stata Journal, StataCorp LP, vol. 6(4), pages 482-496, December.
  8. Damiaan Persyn & Joakim Westerlund, 2008. "Error-correction–based cointegration tests for panel data," Stata Journal, StataCorp LP, vol. 8(2), pages 232-241, June.
  9. International Monetary Fund, 2012. "Commodity Price Volatility and the Sources of Growth," IMF Working Papers 12/12, International Monetary Fund.
  10. Pesaran, M.H., 2003. "A Simple Panel Unit Root Test in the Presence of Cross Section Dependence," Cambridge Working Papers in Economics 0346, Faculty of Economics, University of Cambridge.
  11. Se-Eun Jeong & Jacques Mazier & Jamel Saadaoui, 2010. "Exchange Rate Misalignments at World and European Levels: a FEER Approach," Economie Internationale, CEPII research center, issue 121, pages 25-58.
  12. Carton, Benjamin & Hervé, Karine, 2012. "Estimation of consistent multi-country FEERs," Economic Modelling, Elsevier, vol. 29(4), pages 1205-1214.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:hal:cepnwp:halshs-00750551. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (CCSD)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.