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Title:Concepts to Calculate Equilibrium Exchange Rates: An Overview PDF Logo
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
Document Type:Working Paper
Appears in Collections:Discussion Paper Series 1: Economic Studies, Deutsche Bundesbank

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