Models of Equilibrium Real Exchange Rates Revisited: A Selective Review of the Literature

Ramkishen Rajan and Reza Siregar

Working Papers from eSocialSciences

Abstract: One of the more important concepts in open macroeconomics is the “equilibrium real exchange rate†(ERER). Real exchange rate misalignments are argued to have been the cause of loss of competitiveness and growth slowdowns and eventual currency crises (in the event of sustained overvaluations), overheating (in the event of sustained undervaluation), sectoral misallocation of resources, and global macroeconomic imbalances. This paper examines the underlying concepts, assumptions and analytical bases of commonly employed models of the equilibrium real exchange rate and the manner in which they are usually computed (i.e. operationalized) as well as their shortcomings.

Keywords: real exchange rates; ERER; macroeconomic imbalances (search for similar items in EconPapers)
Date: 2007-09
Note: Working Papers
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Working Paper: Models of Equilibrium Real Exchange Rates Revisited: A Selective Review of the Literature (2006)
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