Feers and Uncertainty: Confidence Intervals for the Fundamental Equilibrium Exchange Rate of the Canadian Dollar

28 Pages Posted: 15 Feb 2006

See all articles by Charles Kramer

Charles Kramer

International Monetary Fund (IMF) - Capital Markets and Financial Studies Research Department

Date Written: July 1996

Abstract

Models of Fundamental Equilibrium Exchange Rates (FEERs) impose internal and external balance, and so appeal to fundamental notions of equilibrium from a macroeconomic perspective. However, the need to estimate internal and external imbalances creates uncertainty in the approach. Parameters must be estimated, and equilibrium balances must be gauged using judgement. Hence it makes sense to consider the FEER as a statistical estimate rather than a fixed number, and to calculate confidence intervals for the FEER. This paper calculates such confidence intervals with data for Canada, under a variety of assumptions. The estimated confidence intervals are quite wide, principally because of uncertainty about price elasticities in the underlying trade equations.

JEL Classification: 211, 431

Suggested Citation

Kramer, Charles F., Feers and Uncertainty: Confidence Intervals for the Fundamental Equilibrium Exchange Rate of the Canadian Dollar (July 1996). IMF Working Paper No. 96/68, Available at SSRN: https://ssrn.com/abstract=882966

Charles F. Kramer (Contact Author)

International Monetary Fund (IMF) - Capital Markets and Financial Studies Research Department ( email )

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Washington, DC 20431
United States
202-623-6348 (Phone)
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