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Post-Brexit FEER

Author

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  • Jamel Saadaoui

Abstract

From the onset of the euro crisis to the Brexit vote, we have assisted to 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 of external competitiveness. In this paper, we provide new estimates of exchange rate misalignments within the euro area to assess whether peripheral countries have managed to improve their external competitiveness. In order to take into account that business cycles are desynchronized in the euro area, we include the correction of Isard and Faruqee (1998) in the FEER methodology of Jeong et al. (2010a). This approach allows to detect reduction of exchange rate misalignments due to improvement of external competitiveness. Besides, it offers a solution to the problem of over-determination in exchange rate models inspired by the SMIM of Cline (2008). Overall, peripheral countries have managed to reduce their exchange rate misalignments thanks to internal devaluations.

Suggested Citation

  • Jamel Saadaoui, 2016. "Post-Brexit FEER," Working Papers of BETA 2016-51, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
    • Handle: RePEc:ulp:sbbeta:2016-51
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    File URL: http://beta.u-strasbg.fr/WP/2016/2016-51.pdf
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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.
    4. William R. Cline, 2008. "Estimating Consistent Fundamental Equilibrium Exchange Rates," Working Paper Series WP08-6, Peterson Institute for International Economics.
    5. C. Couharde & J. Mazier, 2001. "The equilibrium exchange rates of European currencies and the transition to euro," Applied Economics, Taylor & Francis Journals, vol. 33(14), pages 1795-1801.
    6. Jamel Saadaoui, 2011. "Exchange Rate Dynamics and Fundamental Equilibrium Exchange Rates," Post-Print halshs-00593674, HAL.
    7. Mr. Peter Isard & Mr. Hamid Faruqee, 1998. "Exchange Rate Assessment: Extension of the Macroeconomic Balance Approach," IMF Occasional Papers 1998/012, International Monetary Fund.
    8. 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.
    9. Saadaoui, Jamel, 2015. "Global imbalances: Should we use fundamental equilibrium exchange rates?," Economic Modelling, Elsevier, vol. 47(C), pages 383-398.
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    11. Rebecca L Driver & Peter F Westaway, 2005. "Concepts of equilibrium exchange rates," Bank of England working papers 248, Bank of England.
    12. 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.
    13. 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.
    14. Nigel Pain & Annabelle Mourougane & Franck Sédillot & Laurence Le Fouler, 2005. "The New OECD International Trade Model," OECD Economics Department Working Papers 440, OECD Publishing.
    15. 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.
    16. 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.
    17. William Ellery Channing, 1994. "Change," American Journal of Economics and Sociology, Wiley Blackwell, vol. 53(1), pages 15-15, January.
    18. Jamel Saadaoui, 2011. "Exchange Rate Dynamics and Fundamental Equilibrium Exchange Rates," Economics Bulletin, AccessEcon, vol. 31(3), pages 1993-2005.
    19. Mr. Luca A Ricci & Mr. Jonathan David Ostry & Mr. Jaewoo Lee & Mr. Alessandro Prati & Mr. Gian M Milesi-Ferretti, 2008. "Exchange Rate Assessments: CGER Methodologies," IMF Occasional Papers 2008/002, International Monetary Fund.
    20. John Williamson, 1994. "Estimating Equilibrium Exchange Rates," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 17, January.
    21. Carton, Benjamin & Hervé, Karine, 2012. "Estimation of consistent multi-country FEERs," Economic Modelling, Elsevier, vol. 29(4), pages 1205-1214.
    22. Jamel Saadaoui, 2011. "Exchange Rate Dynamics and Fundamental Equilibrium Exchange Rates," Post-Print hal-02169237, HAL.
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    More about this item

    Keywords

    Equilibrium Exchange Rate; Brexit; Internal Devaluation.;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F44 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Business Cycles
    • F45 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Macroeconomic Issues of Monetary Unions

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