On the complementarity of equilibrium exchange rate approaches

Sophie Bereau, Agnès Bénassy-Quéré, Valérie Mignon

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Résumé

Based on a simple, stock–flow adjustment framework, we show that existing concepts of equilibrium exchange rates can be viewed as realizations of the same model at different time horizons. We then compare fundamental and behavioral estimations of equilibrium exchange rates based on the same, econometric modeling of the net foreign asset position in the long run, for a panel of 15 countries over the 1980–2005 period. These estimations suggest that, although more robust to alternative assumptions, the BEER approach may rely on excessive confidence on past behaviors in terms of portfolio choices. Symmetrically, FEERs may underestimate the plasticity of international capital markets because they focus on the adjustment of the trade balance.
langue originaleAnglais
journalReview of International Economics
Volume18
Numéro de publication4
Etat de la publicationPublié - 2010

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