Economic policies, long run equilibrium and exchange rate dynamics[Politiques économiques, dynamique et équilibre de long terme du taux de change]

This thesis focuses on exchange rates dynamics and economic policies. It is divided into three parts. The first part analyzes efficiency in the FX market. Three definitions of efficiency are provided: speculative, macroeconomic and fundamental efficiency. In the short run, the FX market is shown to be inefficient along all three dimensions; in the medium run, the FX market is shown to be efficient from a macroeconomic point of view, but the return to the equilibrium is very slow. The second part focuses on exchange rate determination in macroeconomic models. Chapter two discusses the consequences of modeling options regarding monetary policy, the wage price loop and exchange rate determination on the dynamics of the model and its long-run equilibrium. When more than one variable are sluggish, exchange rate dynamics after an unexpected shock are no longer monotonic and the long-run equilibrium may change. Hysteresis effects are also possible and the chapter shows that temporary shocks can have permanent effects. Chapter three considers modeling options regarding economic policies. Fiscal policy is introduced using both Leeper's framework and time-consistent policies derived from the optimization of the authorities' loss function. With this specification, authorities‘objectives are shown to have an impact on the long-run value of the exchange rate. The third part shows that equilibrium exchange rate theories are controversial both from a theoretical and an empirical point of view. Equilibrium Exchange rate estimates are therefore extremely fragile and those estimates cannot be used to assess whether a currency is over- or undervaluated.