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On currency misalignments within the euro area

Author

Listed:
  • Virginie Coudert

    () (EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique)

  • Cécile Couharde

    () (EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique)

  • Valérie Mignon

    () (EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique)

Abstract

Although nominal parities have been completely pegged within the euro area since the launch of the single currency, real effective exchange rates have continued to vary under the effect of inflation disparities, exhibiting a strong appreciation in the peripheral countries. In this paper, we assess real exchange rate misalignments for euro area countries by using a Behavioral Equilibrium Exchange Rate (BEER) approach on the period 1980-2010. The results show that the peripheral member countries have been suffering from increasingly overvalued exchange rates since the mid-2000s, as their real appreciation has not stemmed from improving fundamentals in terms of productivity or external position. In addition, currency misalignments have been increased on average for all euro area countries since the monetary union, while becoming more persistent. More worryingly, our findings highlight different patterns across members, as misalignments have been larger and more persistent in peripheral countries than in core countries.
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Suggested Citation

  • Virginie Coudert & Cécile Couharde & Valérie Mignon, 2012. "On currency misalignments within the euro area," Post-Print hal-01411722, HAL.
    • Handle: RePEc:hal:journl:hal-01411722
    Note: View the original document on HAL open archive server: https://hal-univ-paris10.archives-ouvertes.fr/hal-01411722
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    as
    1. Chudik, Alexander & Bussière, Matthieu & Mehl, Arnaud, 2011. "Does the euro make a difference? Spatio-temporal transmission of global shocks to real effective exchange rates in an infinite VAR," Working Paper Series 1292, European Central Bank.
    2. Se-Eun Jeong & Jacques Mazier & Jamel Saadaoui, 2010. "Exchange Rate Misalignments at World and European Levels: a FEER Approach," International Economics, CEPII research center, issue 121, pages 25-58.
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    More about this item

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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