Model uncertainty and the equilibrium value of the real effective euro exchange rate

Carsten Detken, Jerome Henry, Frank Smets, Alistair Dieppe and Carmen Marin

No 160, Working Paper Series from European Central Bank

Abstract: On the basis of historical data aggregated over the period 1973 to 2000, we estimated four different equilibrium exchange rate models for the synthetic euro. Using the same data set, variable definitions and sample period offers the possibility to assess the uncertainty surrounding such equilibrium levels, both from a statistical and a theoretical perspective. We employed reduced form co-integration models, a structurla VAR, a Natrex model (estimated in structural form) and the ECB's small-sized euro area wide macro-economic model. In this order the approaches feature an increasing degree of 'structure', in the sense of the constraints based on economic theory embedded in the econometric models that were estimated. The results confirm the high leikelihood for the euro ahving been undervalued in Q4 2000, while stressing the significant empirical and theoretical uncertainty with respect to the equilibrium exchange rate level. JEL Classification: F31, F32

Keywords: equilibrium exchange rate; euro; model uncertainty (search for similar items in EconPapers)
Date: 2002-07
Note: 229418
References: Add references at CitEc
Citations: View citations in EconPapers (50)

Downloads: (external link)
https://www.ecb.europa.eu//pub/pdf/scpwps/ecbwp160.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:2002160

Access Statistics for this paper

More papers in Working Paper Series from European Central Bank 60640 Frankfurt am Main, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Official Publications ().