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On the complementarity of equilibrium exchange-rate approaches

Author

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  • Agnès Bénassy-Quéré

    (CEPII - Centre d'Etudes Prospectives et d'Informations Internationales - Centre d'analyse stratégique, CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)

  • Sophie Béreau
  • Valérie Mignon

    (CEPII - Centre d'études prospectives et d'informations internationales)

Abstract

Based on a simple, stock–flow adjustment framework, we show that existing concepts of equilibrium exchange rates can be viewed as realizations of the same model at different time horizons. We then compare fundamental and behavioral estimations of equilibrium exchange rates based on the same, econometric modeling of the net foreign asset position in the long run, for a panel of 15 countries over the 1980–2005 period. These estimations suggest that, although more robust to alternative assumptions, the BEER approach may rely on excessive confidence on past behaviors in terms of portfolio choices. Symmetrically, FEERs may underestimate the plasticity of international capital markets because they focus on the adjustment of the trade balance.
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Suggested Citation

  • Agnès Bénassy-Quéré & Sophie Béreau & Valérie Mignon, 2010. "On the complementarity of equilibrium exchange-rate approaches," Post-Print hal-00634789, HAL.
    • Handle: RePEc:hal:journl:hal-00634789
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    References listed on IDEAS

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