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World Consistent Equilibrium Exchange Rates

Agnès Benassy-Quere (), Amina Lahrèche-Révil and Valérie Mignon ()
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Amina Lahrèche-Révil: CRIISEA - Centre de Recherche sur les Institutions, l'Industrie et les Systèmes Économiques d'Amiens - UR UPJV 3908 - UPJV - Université de Picardie Jules Verne, CEPII - Centre d'Etudes Prospectives et d'Informations Internationales - Centre d'analyse stratégique

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Abstract: This paper proposes a systematic analysis of the problem of world consistency when deriving equilibrium exchange rates. World inconsistency can arise for two reasons. First, real effective misalignments of currencies out of the considered sample are implicitly assumed to be the mirror image of those of the currencies under review. Second, only N − 1 independent bilateral equilibrium exchange rates can be derived from a set of N effective rates. Here we measure the extent of these two problems by estimating equilibrium exchange rates for 15 countries of the G20 in effective as well as bilateral terms and by varying the assumptions concerning the rest of the world (RoW) and the numeraire currency. Our results show that the way the rest of the world is tackled has a major impact on the calculation of effective misalignments and especially bilateral misalignments.

Keywords: Equilibrium exchange rates; BEER approach; World consistency (search for similar items in EconPapers)
Date: 2011-06
Note: View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-00634788
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Published in Journal of the Japanese and International Economies, Elsevier, 2011, 25 (2), pp.12-32. ⟨10.1016/j.jjie.2009.02.001⟩

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Related works:
Journal Article: World-consistent equilibrium exchange rates (2011) Downloads
Working Paper: World Consistent Equilibrium Exchange Rates (2011)
Working Paper: World Consistent Equilibrium Exchange Rates (2011)
Working Paper: World Consistent Equilibrium Exchange Rates (2006) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:hal:pseptp:hal-00634788

DOI: 10.1016/j.jjie.2009.02.001

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