Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/97493
Authors: 
El-Shagi, Makram
Lindner, Axel
von Schweinitz, Gregor
Year of Publication: 
2014
Series/Report no.: 
IWH Discussion Papers 6/2014
Abstract: 
Were real effective exchange rates (REER) of Euro area member countries drastically misaligned at the outbreak of the global financial crisis? The answer is difficult to determine because economic theory gives no simple guideline for determining the equilibrium values of real exchange rates, and the determinants of those values might have been distorted as well. To overcome these limitations, we use synthetic matching to construct a counterfactual economy for each member as a linear combination of a large set of non-Euro area countries. We find that Euro area crisis countries are best described by a mixture of advanced and emerging economies. Comparing the actual REER with those of the counterfactuals gives sensible estimates of the misalignments at the start of the crisis: All peripheral countries were strongly overvalued, while high undervaluation is only observed for Finland.
Subjects: 
REER misalignment
Euro breakup
synthetic matching
JEL: 
C22
F41
G14
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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