Temporal Dimension and Equilibrium Exchange Rate

Antonia Lòpez-Villavicencio (), Jacques Mazier and Jamel Saadaoui ()
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Antonia Lòpez-Villavicencio: CEPN - Centre d'Economie de l'Université Paris Nord - UP13 - Université Paris 13 - USPC - Université Sorbonne Paris Cité - CNRS - Centre National de la Recherche Scientifique, EconomiX - EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique
Jacques Mazier: CEPN - Centre d'Economie de l'Université Paris Nord - UP13 - Université Paris 13 - USPC - Université Sorbonne Paris Cité - CNRS - Centre National de la Recherche Scientifique
Jamel Saadaoui: CEPN - Centre d'Economie de l'Université Paris Nord - UP13 - Université Paris 13 - USPC - Université Sorbonne Paris Cité - CNRS - Centre National de la Recherche Scientifique, BETA - Bureau d'Économie Théorique et Appliquée - INRA - Institut National de la Recherche Agronomique - UNISTRA - Université de Strasbourg - UL - Université de Lorraine - CNRS - Centre National de la Recherche Scientifique
Authors registered in the RePEc Author Service: Antonia López Villavicencio

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Abstract: This paper investigates the temporal links between two models of equilibrium exchange rate, namely the behavioral and the fundamental approaches. Our results show that, even though in the long-run they are closely related, important differences are observed for some countries and/or some periods. Contrary to previous contributions, we analyze the factors that explain this disconnection. We outline structural changes in matter of competitiveness, the dynamics of foreign assets and valuation effects as explanations. This novel evidence is important if the two approaches for assessing misalignments are used for policy decisions such as setting tariffs to cope with the "currency war".

Keywords: Equilibrium exchange rate; Cointegration; Net foreign assets; Current account; Exchange rate (search for similar items in EconPapers)
Date: 2010-12-15
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Published in SSRN : Social Science Research Network, 2010, 13 (1), pp.58-77. ⟨10.2139/ssrn.1933263⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-02169240

DOI: 10.2139/ssrn.1933263

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