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The Exchange Rate Macroeconomic Balance Approach: New Methodology and Results for the Euro, the Dollar, the Yen and the Pound sterling

Author

Listed:
  • Cécile Couharde

    (CEPN - Centre d'Economie de l'Université Paris Nord (ancienne affiliation) - UP13 - Université Paris 13 - CNRS - Centre National de la Recherche Scientifique)

  • Didier Borowski

    (CEPN - Centre d'Economie de l'Université Paris Nord (ancienne affiliation) - UP13 - Université Paris 13 - CNRS - Centre National de la Recherche Scientifique)

Abstract

This paper presents an extension of the macroeconomic exchange rate balance approach. Thisextension comprises two new aspects. Firstly, it is based on a multinational framework whichallows for macroeconomic linkages between countries. Secondly, it uses a procedure that does notrequire a full modeling of the world economy to derive a consistent set of equilibrium exchangerates. The findings reveal that, in 2001, the dollar was overvalued against the euro and the yen.The paper also shows that this result depends heavily on the chosen notion of current accountsustainability.

Suggested Citation

  • Cécile Couharde & Didier Borowski, 2003. "The Exchange Rate Macroeconomic Balance Approach: New Methodology and Results for the Euro, the Dollar, the Yen and the Pound sterling," Post-Print halshs-00119117, HAL.
    • Handle: RePEc:hal:journl:halshs-00119117
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    References listed on IDEAS

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    1. Gian Maria Milesi-Ferretti & Assaf Razin, 1996. "Sustainability of Persistent Current Account Deficits," NBER Working Papers 5467, National Bureau of Economic Research, Inc.
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    9. Paul R. Krugman, 1985. "Is the strong dollar sustainable?," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 103-155.
    10. Didier Borowski & Cecile Couharde, 1999. "Quelle parite d'equilibre pour l'euro ?," Economie Internationale, CEPII research center, issue 77, pages 21-44.
    11. Ms. Susana Garcia Cervero & J. Humberto Lopez & Mr. Enrique Alberola Ila & Mr. Angel J. Ubide, 1999. "Global Equilibrium Exchange Rates: Euro, Dollar, “Ins,” “Outs,” and Other Major Currencies in a Panel Cointegration Framework," IMF Working Papers 1999/175, International Monetary Fund.
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