IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Global Imbalances: Should We Use Fundamental Equilibrium Exchange Rates

  • Jamel Saadaoui

The reduction of global imbalances observed during the climax of crisis is incomplete. In this context, currencies realignments are still proposed to ensure global macroeconomic stability. These realignments are based on equilibrium rates derived from equilibrium exchange rate models. Among these models, we have the fundamental equilibrium exchange rate model introduced by Williamson (1994). This approach is often labelled as normative mainly because the equilibrium is not uniquely determined. If the FEER is not related either in the short or in the long to the real exchange rates, we see no clear justification to intervene in foreign exchange markets based on these equilibrium rates. In this case, the FEER does not include any element of long run predictive value and should not be used to reduce global imbalances. This paper provides panel empirical evidences that the FEER is related to real exchange rate in the long run and thus could be a useful tool to prevent the resurgence of large global imbalances and associated risks.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.beta-umr7522.fr/productions/publications/2013/2013-14.pdf
Download Restriction: no

Paper provided by Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg in its series Working Papers of BETA with number 2013-14.

as
in new window

Length:
Date of creation: 2013
Date of revision:
Handle: RePEc:ulp:sbbeta:2013-14
Contact details of provider: Postal:
PEGE. 61, Aven. de la Forêt-Noire 67000 Strasbourg

Phone: +33 3 68 85 20 69
Fax: +33 3 68 85 20 70
Web page: http://www.beta-umr7522.fr/
Email:


More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Chinn, Menzie D. & Prasad, Eswar S., 2003. "Medium-term determinants of current accounts in industrial and developing countries: an empirical exploration," Journal of International Economics, Elsevier, vol. 59(1), pages 47-76, January.
  2. Joseph E. Gagnon, 2011. "Current Account Imbalances Coming Back," Working Paper Series WP11-1, Peterson Institute for International Economics.
  3. Kapetanios, G. & Pesaran, M. Hashem & Yamagata, T., 2011. "Panels with non-stationary multifactor error structures," Journal of Econometrics, Elsevier, vol. 160(2), pages 326-348, February.
  4. Mark, Nelson C. & Choi, Doo-Yull, 1997. "Real exchange-rate prediction over long horizons," Journal of International Economics, Elsevier, vol. 43(1-2), pages 29-60, August.
  5. Bernd Schnatz, 2011. "Global Imbalances And The Pretence Of Knowing Fundamental Equilibrium Exchange Rates," Pacific Economic Review, Wiley Blackwell, vol. 16(5), pages 604-615, December.
  6. Mark, Nelson C. & Sul, Donggyu, 2001. "Nominal exchange rates and monetary fundamentals: Evidence from a small post-Bretton woods panel," Journal of International Economics, Elsevier, vol. 53(1), pages 29-52, February.
  7. Michael Binder & Christian J. Offermanns, 2007. "International Investment Positions and Exchange Rate Dynamics: A Dynamic Panel Analysis," CESifo Working Paper Series 2095, CESifo Group Munich.
  8. Jamel Saadaoui, 2011. "Exchange Rate Dynamics and Fundamental Equilibrium Exchange Rates," Economics Bulletin, AccessEcon, vol. 31(3), pages 1993-2005.
  9. Michele Ca' Zorzi & Alistair Dieppe & Alex Chudik, 2011. "Thousands of Models, One Story: Current Account Imbalances in the Global Economy," EcoMod2011 3184, EcoMod.
  10. Nelson C. Mark & Donggyu Sul, 2003. "Cointegration Vector Estimation by Panel DOLS and Long-run Money Demand," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 65(5), pages 655-680, December.
  11. Pesaran, M.H., 2003. "A Simple Panel Unit Root Test in the Presence of Cross Section Dependence," Cambridge Working Papers in Economics 0346, Faculty of Economics, University of Cambridge.
  12. Olivier Blanchard & Gian Maria Milesi-Ferretti, 2012. "(Why) Should Current Account Balances Be Reduced?," IMF Economic Review, Palgrave Macmillan, vol. 60(1), pages 139-150, April.
  13. Antonia Lòpez-Villavicencio & Jacques Mazier & Jamel Saadaoui, 2012. "Temporal Dimension and Equilibrium Exchange Rate: a FEER / BEER Comparison," Post-Print halshs-00535907, HAL.
  14. repec:cii:cepiei:2010-4tb is not listed on IDEAS
  15. Ronald MacDonald & Peter B. Clark, 1998. "Exchange Rates and Economic Fundamentals: A Methodological Comparison of BEERs and FEERs," IMF Working Papers 98/67, International Monetary Fund.
  16. Joakim Westerlund, 2007. "Testing for Error Correction in Panel Data," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 69(6), pages 709-748, December.
  17. Rebecca L Driver & Peter F Westaway, 2005. "Concepts of equilibrium exchange rates," Bank of England working papers 248, Bank of England.
  18. William R. Cline & John Williamson, 2012. "Estimates of Fundamental Equilibrium Exchange Rates, May 2012," Policy Briefs PB12-14, Peterson Institute for International Economics.
  19. Tiago V. De V. Cavalcanti & Kamiar Mohaddes & Mehdi Raissi, 2015. "Commodity Price Volatility and the Sources of Growth," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 30(6), pages 857-873, 09.
  20. Rafael E. De Hoyos & Vasilis Sarafidis, 2006. "Testing for cross-sectional dependence in panel-data models," Stata Journal, StataCorp LP, vol. 6(4), pages 482-496, December.
  21. Binder, Michael & Offermanns, Christian J., 2007. "International investment positions and exchange rate dynamics: a dynamic panel analysis," Discussion Paper Series 1: Economic Studies 2007,23, Deutsche Bundesbank, Research Centre.
  22. Steven Dunaway & Lamin Leigh & Xiangming Li, 2009. "How Robust Are Estimates Of Equilibrium Real Exchange Rates: The Case Of China," Pacific Economic Review, Wiley Blackwell, vol. 14(3), pages 361-375, 08.
  23. Peter Pedroni, 1999. "Critical Values for Cointegration Tests in Heterogeneous Panels with Multiple Regressors," Department of Economics Working Papers 2000-02, Department of Economics, Williams College.
  24. 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.
  25. Yin-Wong Cheung & Menzie Chinn & Eiji Fujii, 2009. "Pitfalls in Measuring Exchange Rate Misalignment," Open Economies Review, Springer, vol. 20(2), pages 183-206, April.
  26. Benjamin Carton & Karine Hervé, 2010. "Estimation of Consistent Multi-Country FEERs," Working Papers 2010-02, CEPII research center.
  27. Su Zhou, 1993. "Fundamental equilibrium exchange rates and exchange rate dynamics," Open Economies Review, Springer, vol. 4(2), pages 189-209, June.
  28. John Williamson, 1994. "Estimating Equilibrium Exchange Rates," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 17, December.
  29. Vincent Duwicquet & Jacques Mazier & Jamel Saadaoui, 2013. "Désajustements de change, fédéralisme budgétaire et redistribution. Comment s'ajuster en union monétaire," Revue de l'OFCE, Presses de Sciences-Po, vol. 0(1), pages 57-96.
  30. Martin S. Feldstein, 2011. "The Role of Currency Realignments in Eliminating the US and China Current Account Imbalances," NBER Working Papers 16674, National Bureau of Economic Research, Inc.
  31. M. Hashem Pesaran, 2004. "Estimation and Inference in Large Heterogeneous Panels with a Multifactor Error Structure," CESifo Working Paper Series 1331, CESifo Group Munich.
  32. Damiaan Persyn & Joakim Westerlund, 2008. "Error-correction–based cointegration tests for panel data," Stata Journal, StataCorp LP, vol. 8(2), pages 232-241, June.
  33. Barisone, Giacomo & Driver, Rebecca L. & Wren-Lewis, Simon, 2006. "Are our FEERs justified?," Journal of International Money and Finance, Elsevier, vol. 25(5), pages 741-759, August.
  34. Jörg Breitung & Samarjit Das, 2005. "Panel unit root tests under cross-sectional dependence," Statistica Neerlandica, Netherlands Society for Statistics and Operations Research, vol. 59(4), pages 414-433.
  35. Agnès Bénassy-Quéré & Sophie Béreau & Valérie Mignon, 2009. "Robust Estimations Of Equilibrium Exchange Rates Within The G20: A Panel Beer Approach," Scottish Journal of Political Economy, Scottish Economic Society, vol. 56(5), pages 608-633, November.
  36. Kefei You & Nicholas Sarantis, 2011. "Structural Breaks and the Equilibrium Chinese Yuan/US Dollar Real Exchange Rate: A FEER Approach," Review of International Economics, Wiley Blackwell, vol. 19(5), pages 791-808, November.
  37. repec:cii:cepiei:2010-1tb is not listed on IDEAS
  38. William R. Cline & John Williamson, 2012. "Updated Estimates of Fundamental Equilibrium Exchange Rates," Policy Briefs PB12-23, Peterson Institute for International Economics.
  39. Granger, C. W. J. & Newbold, P., 1974. "Spurious regressions in econometrics," Journal of Econometrics, Elsevier, vol. 2(2), pages 111-120, July.
  40. Stein, Jerome L. & Allen, Polly Reynolds, 1998. "Fundamental Determinants of Exchange Rates," OUP Catalogue, Oxford University Press, number 9780198293064, July.
  41. Binder, Michael & Offermanns, Christian J., 2007. "International investment positions and exchange rate dynamics: A dynamic panel analysis," CFS Working Paper Series 2007/23, Center for Financial Studies (CFS).
  42. William R. Cline, 2008. "Estimating Consistent Fundamental Equilibrium Exchange Rates," Working Paper Series WP08-6, Peterson Institute for International Economics.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:ulp:sbbeta:2013-14. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.