Exchange Rates and Economic Fundamentals: A Methodological Comparison of BEERs and FEERs

Ronald MacDonald and Peter Clark

No 1998/067, IMF Working Papers from International Monetary Fund

Abstract: This paper compares two approaches for examining the extent to which a country’s actual real effective exchange rate is consistent with economic fundamentals: the FEER approach, which involves calculating the real exchange rate that equates the current account at full employment with sustainable net capital flows, and the BEER approach, which uses econometric methods to establish a behavioral link between the real rate and relevant economic variables. An exchange rate model is estimated for the G-3 currencies to provide illustrative comparisons of BEERs and FEERs.

Keywords: WP; U.S. dollar; FEER approach; FEER exchange rate measure; BEER estimate; equilibrium exchange rate; FEER calculation; BEER analysis; Real exchange rates; Exchange rates; Current account; Real effective exchange rates; Capital account (search for similar items in EconPapers)
Pages: 38
Date: 1998-05-01
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Citations: View citations in EconPapers (373)

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