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Deutsche Bundesbank, Forschungszentrum, Frankfurt am Main >
Discussion Paper Series 1: Economic Studies, Deutsche Bundesbank >
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http://hdl.handle.net/10419/19531
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| Title: | | Concepts to Calculate Equilibrium Exchange Rates: An Overview  |
| Authors: | | MacDonald, Ronald |
| Issue Date: | | 2000 |
| Series/Report no.: | | Discussion paper Series 1 / Volkswirtschaftliches Forschungszentrum der Deutschen Bundesbank 2000,03 |
| Abstract: | | In this paper we present a critical overview of differnt methods of constructing an equilibrium exchange rate. The recent literature on purchasing power parity (PPP) indicates that on its own PPP is not a good vehicle for defining an equilibrium exchange rate. Rather, we argue that the latter can only be recover from a model in which the real determinants of exchange rates are explicitly modelled. The advantages and disadvantages of various such models are discussed. In particular, the internal-external balance approach to defining an equilibrium real exchange rate is disccused, and this method is compared to the so-called behavioural equilibrium approach. Finally, an approach which uses purely time series methods to construct an equilibrium exchange rate is also discussed. |
| Subjects: | | Equilibrium Exchange Rates Purchasing Power Parity Real Exchange Rate Models |
| JEL: | | F31 |
| Document Type: | | Working Paper |
| Appears in Collections: | | Discussion Paper Series 1: Economic Studies, Deutsche Bundesbank
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