Feers and the Path to EMU

1991 ◽  
Vol 137 ◽  
pp. 51-58 ◽  
Author(s):  
Ray Barrell ◽  
J.W. In't Veld
Keyword(s):  
Exchange Rates ◽  
Monetary Union ◽  
Real Exchange Rates ◽  
Equilibrium Exchange Rate ◽  
Future Evolution ◽  
Equilibrium Exchange ◽  
Parametric Change ◽  
European Economies ◽  
Fundamental Equilibrium Exchange Rate ◽  
Recent Version

The concept of the Fundamental Equilibrium Exchange Rate (FEER) was first used in Williamson (1983) to calculate the misalignments of the exchange rates for major currencies, and as a basis for his target zone proposal. In this note we use the same concept in a different context, that of the relations amongst the European economies which are members of the ERM, a system which is evolving towards monetary union. The first section reviews the concept of the FEER and its use in policy analysis. The second section relates this to the analysis of real exchange rates and external balance within a potential monetary union. The third section includes new estimates of FEERs using the most recent version of our world model, and considers the possible future evolution of FEERs in the context of EMU, including some tests of the sensitivity of these estimates to parametric change.

scholarly journals On equilibrium real exchange rates in euro area: Special focus on behavioral equilibrium exchange rates in Ireland and Greece

2012 ◽  
Vol 60 (2) ◽  
pp. 261-270
Author(s):  
Klára Plecitá ◽  
Luboš Střelec
Keyword(s):  
Exchange Rate ◽  
Exchange Rates ◽  
Euro Area ◽  
Real Exchange Rates ◽  
Special Focus ◽  
Equilibrium Exchange Rate ◽  
Macroeconomic Imbalances ◽  
Long Run ◽  
Equilibrium Exchange ◽  
Behavioral Equilibrium Exchange Rate

This paper focuses on the intra-euro-area imbalances. Therefore the first aim of this paper is to identify euro-area countries exhibiting macroeconomic imbalances. The subsequent aim is to estimate equilibrium real exchange rates for these countries and to compute their degrees of real exchange rate misalignment. The intra-area balance is assessed using the Cluster Analysis and the Principle Component Analysis; on this basis Greece and Ireland are selected as the two euro-area countries with largest imbalances in 2010. Further the medium-run equilibrium exchange rates for Greece and Ireland are estimated applying the Behavioral Equilibrium Exchange Rate (BEER) approach popularised by Clark and MacDonald (1998). In addition, the long-run equilibrium exchange rates are estimated using the Permanent Equilibrium Exchange Rate (PEER) model. Employing the BEER and PEER approaches on quarterly time series of real effective exchange rates (REER) from 1997: Q1 to 2010: Q4 we identify an undervaluation of the Greek and Irish REER around their entrance to the euro area. For the rest of the period analysed their REER is broadly in line with estimated BEER and PEER levels.

Before the Fall

2017 ◽  
Author(s):  
Martin Sandbu
Keyword(s):  
Interest Rate ◽  
Exchange Rates ◽  
Monetary Union ◽  
Current Account ◽  
Real Exchange Rates ◽  
Central Banks ◽  
Current Account Deficits ◽  
Nominal Exchange Rates ◽  
European Economies

This chapter discusses the role of Europe's monetary union in creating a crisis that first erupted in US mortgages. Because of their monetary union, European economies racked up greater risks in the 2000s boom than they would have done had they kept their individual currencies. The factors invoked to blame the euro include the destabilising effect of a single interest rate for the entire eurozone; the misalignment of real exchange rates when nominal exchange rates could no longer adjust; the ability to run current account deficits that were too large and lasted too long; and, finally, the fact that debt was accumulated in a currency that could not be printed at will by national central banks. The chapter argues that all these factors have been commonly misunderstood.

Misalignment, Debt Accumulation and Fundamental Equilibrium Exchange Rates

1995 ◽  
Vol 153 ◽  
pp. 73-83 ◽  
Author(s):  
Michael J. Artis ◽  
Mark P. Taylor
Keyword(s):  
Exchange Rate ◽  
Exchange Rates ◽  
Current Account ◽  
Hysteresis Effect ◽  
Equilibrium Exchange Rate ◽  
Formal Expression ◽  
Debt Accumulation ◽  
Equilibrium Exchange ◽  
Rules Of Thumb ◽  
Fundamental Equilibrium Exchange Rate

This article deals with hysteresis in the fundamental equilibrium exchange rate (FEER) arising from misalignment. When the actual real exchange rate departs from its FEER value, current account realisations—and consequently, debt service obli gations—will differ from those assumed in the initial FEER calculation, necessitating its recomputation. The article derives a formal expression for this hysteresis effect in the FEER, and derives and applies rules of thumb for computing the hysteresis effect when considering the rate of approach of an exchange rate toward its FEER value.

Properties of the fundamental equilibrium exchange rate in the Treasury model

1999 ◽  
Vol 169 ◽  
pp. 96-104 ◽  
Author(s):  
Keith B. Church
Keyword(s):  
Exchange Rate ◽  
Real Exchange Rate ◽  
Nominal Exchange Rate ◽  
Equilibrium Exchange Rate ◽  
Natural Rate ◽  
The Real ◽  
Long Run ◽  
Equilibrium Exchange ◽  
The Uk ◽  
Fundamental Equilibrium Exchange Rate

This article calculates the equilibrium real exchange rate for the UK economy. The long-run trade and supply side relationships from HM Treasury's model are used to estimate the level of the real exchange rate consistent with the UK economy growing at its ‘natural’ rate while achieving a sustainable current account position. The model shows that the real exchange rate associated with macroeconomic equilibrium lies well below the actual rate for most of the 1990s. This result has important implications for possible UK participation in the single European currency as, once the nominal exchange rate is fixed, overvaluation can only be corrected by holding UK inflation lower than that elsewhere. Achieving this may be costly in terms of jobs and output.

scholarly journals Exchange rate modelling in the development community using the ARDL cointegration approach: The case of emerging markets

2020 ◽  
Vol 10 (2) ◽  
pp. 53-70
Author(s):  
Abdulkader Aljandali ◽  
Christos Kallandranis
Keyword(s):  
Exchange Rate ◽  
Exchange Rates ◽  
Equilibrium Exchange Rate ◽  
Distributed Lag ◽  
Autoregressive Distributed Lag ◽  
Ex Post ◽  
Long Run ◽  
Equilibrium Exchange ◽  
Exchange Rate Movements ◽  
Exchange Rate Models

Despite rising interest in African economies, there is little prior research on the determinants of exchange rate movements in the region. This paper examines the monthly exchange rates of the country members of the Southern African Development Community (SADC) from 1990 to 2010 inclusive. Long-run equilibrium exchange rate models are established, exchange rate determinants are identified, and ex-post forecasts are generated for a period of 18 months (Sekantsi, 2011). The autoregressive distributed lag (ARDL) cointegration model is used in this paper, given its statistical advantages over commonly, applied cointegration techniques. Findings show that the ARDL method generates accurate forecasts for eight out of 11 sampled exchange rates. In keeping with earlier literature (e.g., Redda & Muzindusti, 2017; Zerihun & Breitenbach, 2017; etc.), findings suggest that the chances of SADC member countries fulfilling the requirements of a currency union are quite low. This paper marks one of the first attempts in the literature to forecast exchange rates in SADC using the ARDL approach (Pesaran & Shin, 1995). The results would be of interest to policy-makers, researchers and investors.

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