Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/19531
Authors: 
MacDonald, Ronald
Year of Publication: 
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

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