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Real equilibrium exchange rates. A panel data approach for advanced and emerging economies

  • Antonia López Villavicencio


    (Departament d'Economia Aplicada, Universitat Autonoma de Barcelona)

Based on an behavioral equilibrium exchange rate model, this paper examines the determinants of the real effective exchange rate and evaluates the degree of misalignment of a group of currencies since 1980. Within a panel cointegration setting, we estimate the relationship between exchange rate and a set of economic fundamentals, such as traded-nontraded productivity differentials and the stock of foreign assets. Having ascertained the variables are integrated and cointegrated, the long-run equilibrium value of the fundamentals are estimated and used to derive equilibrium exchange rates and misalignments. Although there is statistical homogeneity, some structural differences were found to exist between advanced and emerging economies.

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Paper provided by Department of Applied Economics at Universitat Autonoma of Barcelona in its series Working Papers with number wpdea0605.

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Length: 27 pages
Date of creation: Nov 2006
Date of revision:
Handle: RePEc:uab:wprdea:wpdea0605
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