World Consistent Equilibrium Exchange Rates

Agnès Bénassy-Quéré (), Amina Lahreche-Revil and Valérie Mignon ()

Working Papers from CEPII research center

Abstract: This paper proposes a systematic analysis of the problem of world consistency when deriving equilibrium exchange rates. World inconsistency can arise for two reasons. First, real effective misalignments of currencies out of the considered sample are implicitly assumed to be the mirror image of those of the currencies under review. Second, only N ? 1 independent bilateral equilibrium exchange rates can be derived from a set of N effective rates. Here we measure the extent of these two problems by estimating equilibrium exchange rates for 15 countries of the G20 in effective as well as bilateral terms and by varying the assumptions concerning the rest of the world and the numeraire currency. Our results show that the way the rest of the world is tackled has a major impact on the calculation of effective misalignments and especially bilateral misalignments.

Keywords: Equilibrium exchange rates; BEER approach; world consistency; models; panel (search for similar items in EconPapers)
JEL-codes: F31 C23 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba and nep-ifn
Date: 2006-12

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Persistent link: http://EconPapers.repec.org/RePEc:cii:cepidt:2006-20

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