Fundamental Equilibrium Exchange Rates for the G7

Ray Barrell and Simon Wren-Lewis

No 323, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: The Fundamental Equilibrium Exchange Rate (FEER) is the real exchange rate which produces a current account that is exactly matched by equilibrium medium-term capital flows. This paper sets out a small model to calculate FEERs for the G7 from 1971 to 1988. This model's parameters are either directly estimated or derived from the long-run properties of a larger world econometric model, GEM. Particular attention is paid to feedbacks from the FEER to the NAIRU, and interactions between world output, trade and commodity prices.

Keywords: Capital Flows; Current Account; Exchange Rates (search for similar items in EconPapers)
Date: 1989-06
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