Robustness of Equilibrium Exchange Rate Calculations to Alternative Assumptions and Methodologies

50 Pages Posted: 15 Feb 2006

See all articles by Tamim Bayoumi

Tamim Bayoumi

International Monetary Fund (IMF); Centre for Economic Policy Research (CEPR)

Steven Symansky

International Monetary Fund (IMF) - Fiscal Affairs Department

Date Written: February 1994

Abstract

This paper explores a number of methodological issues that arise in the calculation of equilibrium exchange rates, which are identified in this paper as those real effective exchange rates consistent with macroeconomic equilibrium, i.e., internal and external balance. A partial equilibrium, comparative static analysis is presented and the methodology is applied to the break-up of the Bretton Woods exchange rate system. Then the dynamic interaction between the current account and the stock of net foreign assets is examined. Finally, the analysis uses a more general equilibrium approach by relying on simulations using MULTIMOD, a multicountry econometric model. The paper demonstrates the extent to which the equilibrium exchange rate calculations depend upon alternative assumptions regarding factors that affect internal and external balance. In addition, results obtained using the comparative static and dynamic macroeconomic approaches are compared.

JEL Classification: F31, F32, F41

Suggested Citation

Bayoumi, Tamim and Symansky, Steven, Robustness of Equilibrium Exchange Rate Calculations to Alternative Assumptions and Methodologies (February 1994). IMF Working Paper No. 94/17, Available at SSRN: https://ssrn.com/abstract=883443

Tamim Bayoumi (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States
202-623-6333 (Phone)
202-623-4795 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Steven Symansky

International Monetary Fund (IMF) - Fiscal Affairs Department ( email )

700 19th Street, NW
Washington, DC 20431
United States

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