Deer Hunting: Misalignment, Debt Accumulation, and Desired Equilibrium Exchange Rates

Mark Taylor and Michael Artis

No 1993/048, IMF Working Papers from International Monetary Fund

Abstract: This paper deals with hysteresis in the desired equilibrium exchange rate (DEER) arising from misalignment. When the actual real exchange rate departs from its DEER value, current account realizations--and consequently, debt service obligations--will differ from those assumed in the initial DEER calculation, necessitating its recomputation. The paper derives a formal expression for this hysteresis effect in the DEER, studies the convergence properties of a system in which the evolution of actual exchange rates depends on the DEER and provides illustrative calculations of its historical significance. Finally, the paper derives and applies rules of thumb for computing the hysteresis effect when considering the rate of approach of an exchange rate to its DEER value.

Keywords: WP; rate of exchange; exchange rate; exchange rate movement; equilibrium exchange rate; DEER adjustment; deer hunting; DEER value; DEER devaluation; DEER trajectory; Exchange rates; Real exchange rates; Exchange rate adjustments; Debt service; Current account balance; Global (search for similar items in EconPapers)
Pages: 36
Date: 1993-06-01
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Citations: View citations in EconPapers (16)

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