Price and cost competitiveness misalignments of the euro area and of its main economies according to a quarterly BEER model, 1999-2017

Claire Giordano

No 444, Questioni di Economia e Finanza (Occasional Papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: This study first assesses recent misalignments of the real effective exchange rate (REER) of the euro area and of the Harmonized Competitiveness Indicators (HCIs) of its main economies, based on a quarterly Behavioural Equilibrium Exchange Rate (BEER) model. Next, it draws a comparison with comparable estimates published by the IMF and by CEPII. The BEER model here employed was first put forward by Fidora, Giordano and Schmitz (2017; 2018) and enables the assessment of the departure of actual REERs and HCIs from values consistent with underlying economic fundamentals (i.e. �equilibrium� values). The quarterly model has now been extended to cover a longer time span (1999-2017) and refined by employing new data sources, in particular relative to producer price indices, one of five alternative price/cost indicators used to derive the REERs and HCIs. There is evidence of a modest overvaluation of the euro-area REER in 2017, partly linked to the nominal appreciation of its currency in the second half of the year.

Keywords: price competitiveness; cost competitiveness; real effective exchange rate; equilibrium exchange rate; misalignments (search for similar items in EconPapers)
JEL-codes: E31 F00 F31 (search for similar items in EconPapers)
Date: 2018-07
New Economics Papers: this item is included in nep-eec and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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