Equilibrium Real Effective Exchange Rates and Real Exchange Rate Misalignments: Time Series vs. Panel Estimates
We follow the behavioral equilibrium exchange rate approach by Clark and MacDonald (1998) to derive equilibrium real effective exchange rates and currency misalignments for the US and its 16 major trading partners. We apply cointegration and panel cointegration techniques to derive fully countryspecific measures of misalignment and measures based on panel estimates. We formally test the forecast performance of pooled vs. heterogeneous estimators over a hold-back period and find that pooling the data delivers more accurate forecasts in the vast majority of cases although the implicit long-run homogeneity restriction is statistically rejected. This is especially remarkable, since we have given the heterogeneous estimator an ’unfair’ advantage by choosing the country-specific model (of up to 21 possible ones) with the best out-of-sample performance prior to comparing it to two final panel specifications. Robustness of the results is supported by recently introduced cross-sectionally augmented panel unit root tests by Pesaran (2007) and bootstrapped error correction-based panel cointegration tests by Westerlund (2007), as well as different estimators. While we find strong evidence for the Balassa-Samuelson-effect, the evidence for other commonly hypothesized fundamentals is weak.
|Date of creation:||Dec 2010|
|Date of revision:|
|Contact details of provider:|| |
|Order Information:|| Postal: FIW Project Office Austrian Institute of Economic Research Arsenal Objekt 20 A-1030 Vienna|
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.:
- Simon Wren-Lewis & Rebecca Driver, 1998.
"Real Exchange Rates for the Year 2000,"
Peterson Institute Press: All Books,
Peterson Institute for International Economics, number pa54, December.
- Simon Wren-Lewis & Rebecca Driver, 1998. "Real Exchange Rates for the Year 2000," Peterson Institute Press: Policy Analyses in International Economics, Peterson Institute for International Economics, number pa54, 03.
- 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.
- Francisco Maeso-Fernandez & Chiara Osbat & Bernd Schnatz, 2002.
"Determinants of the Euro Real Effective Exchange Rate: A BEER/PEER Approach,"
Australian Economic Papers,
Wiley Blackwell, vol. 41(4), pages 437-461, December.
- Francisco Maeso-Fernandez & Chiara Osbat & Bernd Schnatz, 2001. "Determinants of the euro real effective exchange rate: a BEER/PEER approach," International Finance 0111003, EconWPA.
- Maeso-Fernandez, Francisco & Osbat, Chiara & Schnatz, Bernd, 2001. "Determinants of the euro real effective exchange rate: a BEER/PEER approach," Working Paper Series 0085, European Central Bank.
- Martin Melecky & Lubos Komarek, 2005.
"The Behavioral Equilibrium Exchange Rate of the Czech Koruna,"
- Martin Melecký & Luboš Komárek, 2007. "The Behavioral Equilibrium Exchange Rate of the Czech Koruna," Transition Studies Review, Springer, vol. 14(1), pages 105-121, May.
- Lubos Komarek & Martin Melecky, 2005. "The Behavioural Equilibrium Exchange Rate of the Czech Koruna," Working Papers 2005/05, Czech National Bank, Research Department.
When requesting a correction, please mention this item's handle: RePEc:wsr:wpaper:y:2010:i:065. 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 references are entirely missing, you can add them using this form.