Determinants of the Euro Real Effective Exchange Rate: A Beer/Peer Approach

48 Pages Posted: 27 Feb 2003

See all articles by Francisco Maeso Fernández

Francisco Maeso Fernández

University of Murcia - Department of Applied Economics

Chiara Osbat

European Central Bank (ECB)

Bernd Schnatz

European Central Bank (ECB)

Multiple version iconThere are 2 versions of this paper

Date Written: November 2001

Abstract

This paper presents an empirical analysis of the medium-term determinants of the euro effective exchange rate. The empirical analysis builds on synthetic quarterly data from 1975 to 1998, and derives a Behavioural Equilibrium Exchange Rate (BEER) and a Permanent Equilibrium Exchange Rate (PEER). Four different model specifications are retained, due to the difficulties encountered in specifying an encompassing model. Results indicate that differentials in real interest rates and productivity, and (in some specifications) the relative fiscal stance and the real price of oil, have a significant influence on the euro effective exchange rate. Assessing the existence and the extent of the over- or undervaluation of the exchange rate is not straightforward, since these different specifications often lead to contrasting findings. However, all four models point unambiguously to the undervaluation of the euro in 2000, although the extent of this undervaluation largely depends on the specification chosen.

Keywords: euro; equilibrium exchange rates; cointegration analysis; Gonzalo-Granger decomposition; fundamentals; BEER; PEER

JEL Classification: F31, F32

Suggested Citation

Maeso Fernández, Francisco and Osbat, Chiara and Schnatz, Bernd, Determinants of the Euro Real Effective Exchange Rate: A Beer/Peer Approach (November 2001). ECB Working Paper No. 85. Available at SSRN: https://ssrn.com/abstract=356263

Francisco Maeso Fernández (Contact Author)

University of Murcia - Department of Applied Economics ( email )

3010 Murcia
Spain
+34 968363718 (Phone)

Chiara Osbat

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany
+49 69 1344 6821 (Phone)
+49 69 1344 6000 (Fax)

Bernd Schnatz

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany
069-1344-6517 (Phone)

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
346
Abstract Views
2,123
rank
81,610
PlumX Metrics