Single-Equation Estimation of the Equilibrium Real Exchange Rate
55 Pages Posted: 20 Apr 2016
Date Written: August 20, 1997
An econometric methodology for estimating both the equilibrium real exchange rate and the degree of exchange-rate misalignment.
Estimating the degree of exchange-rate misalignment remains one of the most challenging empirical problems in an open economy. The basic problem is that the value of the real exchange rate is not observable. Standard theory tells us, however, that the equilibrium real exchange rate is a function of observable macroeconomic variables and that the actual real exchange rate approaches the equilibrium rate over time.
A recent strand of the empirical literature exploits these observations to develop a single-equation approach to estimating the equilibrium real exchange rate. Drawing on that earlier work, Baffes, Elbadawi, and O'Connell outline an econometric methodology for estimating both the equilibrium real exchange rate and the degree of exchange-rate misalignment. They illustrate the methodology using annual data from Cote d'Ivoire and Burkina Faso.
This paper - a product of the Development Research Group - is part of a larger effort in the group to investigate the determinants of the real exchange rate.
Suggested Citation: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
International Evidence on Tradables and Nontradables Inflation
Relative Labor Productivity and the Real Exchange Rate in the Long Run: Evidence for a Panel of OECD Countries
By Matthew B. Canzoneri, Robert E. Cumby, ...
International Evidence on Tradables and Nontradable Inflation
Exchange Rates and Economic Fundamentals: A Methodological Comparison of Beers and Feers
By Peter B. Clark and Ronald Macdonald
Real Exchange Rates in the Developing Countries: Concepts and Measure- Ment
The EMS, the Emu, and the Transition to a Common Currency
By Kenneth Froot and Kenneth Rogoff
Real Exchange Rates and Productivity Growth in the United States and Japan
Asset Markets, Exchange Rates and the Balance of Payments
By Jacob A. Frenkel and Michael L. Mussa
Global Equilibrium Exchange Rates: Euro, Dollar, 'Ins', 'Outs', and Other Major Currencies in a Panel Cointegration Framework
By Enrique Alberola, Humberto Lopez, ...
Long-Run Exchange Rate Modeling: A Survey of the Recent Evidence