Post-Brexit FEER

Jamel Saadaoui

Working Papers of BETA from Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg

Abstract: From the onset of the euro crisis to the Brexit vote, we have assisted to impressive reductions of current account imbalances in peripheral countries of the euro area. These reductions can be the result of either a compression of internal demand or an improvement of external competitiveness. In this paper, we provide new estimates of exchange rate misalignments within the euro area to assess whether peripheral countries have managed to improve their external competitiveness. In order to take into account that business cycles are desynchronized in the euro area, we include the correction of Isard and Faruqee (1998) in the FEER methodology of Jeong et al. (2010a). This approach allows to detect reduction of exchange rate misalignments due to improvement of external competitiveness. Besides, it offers a solution to the problem of over-determination in exchange rate models inspired by the SMIM of Cline (2008). Overall, peripheral countries have managed to reduce their exchange rate misalignments thanks to internal devaluations.

Keywords: Equilibrium Exchange Rate; Brexit; Internal Devaluation. (search for similar items in EconPapers)
JEL-codes: F31 F32 F44 F45 (search for similar items in EconPapers)
Date: 2016
New Economics Papers: this item is included in nep-opm
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Persistent link: https://EconPapers.repec.org/RePEc:ulp:sbbeta:2016-51

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