Measuring the Euro-Dollar Permanent Equilibrium Exchange Rate using the Unobserved Components Model

Xiaoshan Chen and Ronald MacDonald

No 2015-05, SIRE Discussion Papers from Scottish Institute for Research in Economics (SIRE)

Abstract: This paper employs an unobserved component model that incorporates a set of economic fundamentals to obtain the Euro-Dollar permanent equilibrium exchange rates (PEER) for the period 1975Q1 to 2008Q4. The results show that for most of the sample period, the Euro-Dollar exchange rate closely followed the values implied by the PEER. The only significant deviations from the PEER occurred in the years immediately before and after the introduction of the single European currency. The forecasting exercise shows that incorporating economic fundamentals provides a better long-run exchange rate forecasting performance than a random walk process.

Keywords: Permanent Equilibrium Exchange Rate; Unobserved Components Model; Exchange rate forecasting (search for similar items in EconPapers)
Date: 2014-11
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://hdl.handle.net/10943/593
Our link check indicates that this URL is bad, the error code is: 404 Not Found

Related works:
Working Paper: Measuring the Euro-Dollar Permanent Equilibrium Exchange Rate using the Unobserved Components Model (2014)
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:edn:sirdps:593

Access Statistics for this paper

More papers in SIRE Discussion Papers from Scottish Institute for Research in Economics (SIRE) 31 Buccleuch Place, EH8 9JT, Edinburgh. Contact information at EDIRC.
Bibliographic data for series maintained by Research Office ().