Exchange Rates and Economic Fundamentals: A Methodological Comparison of Beers and Feers

Clark, Peter B.; MacDonald, Ronald

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Exchange Rates and Economic Fundamentals: A Methodological Comparison of Beers and Feers

IMF Working Paper No. 98/67

38 Pages Posted: 15 Feb 2006

See all articles by Peter B. Clark

Ronald MacDonald

University of Strathclyde in Glasgow - Department of Economics; Government of New Zealand - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: May 1998

Abstract

This paper compares two approaches for examining the extent to which a country`s actual real effective exchange rate is consistent with economic fundamentals: the FEER approach, which involves calculating the real exchange rate that equates the current account at full employment with sustainable net capital flows, and the BEER approach, which uses econometric methods to establish a behavioral link between the real rate and relevant economic variables. An exchange rate model is estimated for the G-3 currencies to provide illustrative comparisons of BEERs and FEERs.

Keywords: real exchange rates, equilibrium exchange rates

JEL Classification: F31, F32, F41

Suggested Citation: Suggested Citation

Clark, Peter B. and MacDonald, Ronald R., Exchange Rates and Economic Fundamentals: A Methodological Comparison of Beers and Feers (May 1998). IMF Working Paper No. 98/67, Available at SSRN: https://ssrn.com/abstract=882342