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Internal Devaluations and Equilibrium Exchange Rates: new evidences and perspectives for the EMU

Author

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  • Jamel Saadaoui

    (CEPN - Centre d'Economie de l'Université Paris Nord - UP13 - Université Paris 13 - USPC - Université Sorbonne Paris Cité - CNRS - Centre National de la Recherche Scientifique, BETA - Bureau d'Économie Théorique et Appliquée - INRA - Institut National de la Recherche Agronomique - UNISTRA - Université de Strasbourg - UL - Université de Lorraine - CNRS - Centre National de la Recherche Scientifique)

Abstract

From the onset of the euro crisis to the Brexit vote, we have witnessed impressive reductions of current account imbalances in peripheral countries of the euro area. These reductions can be the result of either a compression of internal demand or an improvement in external competitiveness. In this paper, we compute exchange rate misalignments within the euro area to assess whether peripheral countries have managed to improve their external competitiveness. After controlling for the reduction of business cycle synchronization within the EMU, we find that peripheral countries have managed to reduce their exchange rate misalignments thanks to internal devaluations. To some extent, these favourable evolutions reflect improvements in external competitiveness. Nevertheless, these gains could only be temporary if peripheral countries do not improve their non-price competitiveness, their trade structures and their international specializations in the long run.

Suggested Citation

  • Jamel Saadaoui, 2018. "Internal Devaluations and Equilibrium Exchange Rates: new evidences and perspectives for the EMU," Post-Print hal-02168395, HAL.
    • Handle: RePEc:hal:journl:hal-02168395
    DOI: 10.1080/00036846.2018.1486019
    Note: View the original document on HAL open archive server: https://hal.science/hal-02168395v3
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    References listed on IDEAS

    as
    1. Seeun Jeong & Jacques Mazier & Jamel Saadaoui, 2010. "Exchange Rate Misalignments at World and European Levels : A FEER Approach," Post-Print hal-02169238, HAL.
    2. Jamel Saadaoui, 2015. "Does financial openness explain the increase of global imbalances before the crisis of 2008?," International Economics, CEPII research center, issue 143, pages 23-35.
    3. Didier Borowski & Cecile Couharde, 2003. "The Exchange Rate Macroeconomic Balance Approach: New Methodology and Results for the Euro, the Dollar, the Yen and the Pound Sterling," Open Economies Review, Springer, vol. 14(2), pages 169-190, April.
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    6. Virginie Coudert & Cécile Couharde & Valérie Mignon, 2013. "On Currency Misalignments within the Euro Area," Review of International Economics, Wiley Blackwell, vol. 21(1), pages 35-48, February.
    7. Saadaoui, Jamel, 2015. "Global imbalances: Should we use fundamental equilibrium exchange rates?," Economic Modelling, Elsevier, vol. 47(C), pages 383-398.
    8. Campos, Nauro F. & Macchiarelli, Corrado, 2016. "Core and Periphery in the European Monetary Union: Bayoumi and Eichengreen 25 years later," Economics Letters, Elsevier, vol. 147(C), pages 127-130.
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    10. Rebecca L Driver & Peter F Westaway, 2005. "Concepts of equilibrium exchange rates," Bank of England working papers 248, Bank of England.
    11. Jamel Saadaoui & Jacques Mazier & Nabil Aflouk, 2013. "On the determinants of exchange rate misalignments," Applied Economics Letters, Taylor & Francis Journals, vol. 20(18), pages 1608-1610, December.
    12. Se-Eun Jeong & Jacques Mazier, 2003. "Exchange Rate Regimes and Equilibrium Exchange Rates in East Asia," Revue économique, Presses de Sciences-Po, vol. 54(5), pages 1161-1182.
    13. 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.
    14. Lòpez-Villavicencio, Antonia & Mazier, Jacques & Saadaoui, Jamel, 2012. "Temporal dimension and equilibrium exchange rate: A FEER/BEER comparison," Emerging Markets Review, Elsevier, vol. 13(1), pages 58-77.
    15. Jamel Saadaoui, 2011. "Exchange Rate Dynamics and Fundamental Equilibrium Exchange Rates," Economics Bulletin, AccessEcon, vol. 31(3), pages 1993-2005.
    16. John Williamson, 1994. "Estimating Equilibrium Exchange Rates," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 17, October.
    17. Jamel Saadaoui, 2011. "Exchange Rate Dynamics and Fundamental Equilibrium Exchange Rates," Post-Print hal-02169237, HAL.
    18. repec:hal:cepnwp:halshs-00829460 is not listed on IDEAS
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Florian Morvillier, 2018. "On the impact of the launch of the euro on EMU macroeconomic vulnerability," EconomiX Working Papers 2018-51, University of Paris Nanterre, EconomiX.
    2. Amélie Barbier-Gauchard & Meixing Dai & Claire Mainguy & Jamel Saadaoui & Moïse Sidiropoulos & Isabelle Terraz & Jamel Trabelsi, 2021. "Towards a more resilient European Union after the COVID-19 crisis," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 11(2), pages 321-348, June.
    3. Bruno Ducoudre & Xavier Timbeau & Sébastien Villemot, 2018. "The magnitude of euro area misalignments in 2017," SciencePo Working papers Main hal-03389334, HAL.
    4. Florian Morvillier, 2018. "On the impact of the launch of the euro on EMU macroeconomic vulnerability," Working Papers hal-04141675, HAL.
    5. Amélie Barbier-Gauchard & Meixing Dai & Claire Mainguy & Jamel Saadaoui & Moïse Sidiropoulos & Isabelle Terraz & Jamel Trabelsi, 2020. "Towards a more resilient European Union after the COVID-19 crisis," Working Papers hal-03008144, HAL.
    6. Agnello, Luca & Castro, Vítor & Sousa, Ricardo M., 2023. "A quest between fiscal and market discipline," Economic Modelling, Elsevier, vol. 119(C).

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