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

25 Pages Posted: 13 Jan 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)

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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 specifications are retained, due to the difficulties encountered in specifying an encompassing model. The 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 specifications point unambiguously to the undervaluation of the euro in 2000, although the extent of this undervaluation largely depends on the specification chosen.

Suggested Citation

Maeso Fernández, Francisco and Osbat, Chiara and Schnatz, Bernd, Determinants of the Euro Real Effective Exchange Rate: A Beer/Peer Approach. Australian Economic Papers, Vol. 41, pp. 437-461, 2002. Available at SSRN: https://ssrn.com/abstract=368506

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)

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