Siregar, Reza (2011): The Concepts of Equilibrium Exchange Rate: A Survey of Literature.
Download (232kB) | Preview
The aim of this paper is to review and examine a collection of ‘most commonly applied’ theoretical and empirical models of equilibrium exchange rate. The presentation on each model starts with an introduction of core theoretical frameworks. It will then be followed by discussions on relevant empirical steps to estimate the equilibrium rate. The rest of the paper will focus on assessing the strengths and weaknesses of the model and how each relates to the other.
|Item Type:||MPRA Paper|
|Original Title:||The Concepts of Equilibrium Exchange Rate: A Survey of Literature|
|Keywords:||Equilibrium, Exchange Rate Models, PPP, Monetary Model, BEER, DEER, FEER, PEER and NATREX|
|Subjects:||F - International Economics > F3 - International Finance > F32 - Current Account Adjustment ; Short-Term Capital Movements
F - International Economics > F3 - International Finance > F31 - Foreign Exchange
|Depositing User:||Reza Yamora Siregar|
|Date Deposited:||22. Feb 2011 19:01|
|Last Modified:||21. Feb 2013 06:13|
Baillie, R.T., and Pecchenino, R.A. (1991), “The Search for Equilibrium Relationships in International Finance: the Case of Monetary Model”, Journal of International Money and Finance, Vol. 10, pp. 582-593.
Bayoumi, T., Clark, P., Symansky, S., and Taylor, M. (1994), ed. J. Williamson, Estimating Equilibrium Exchange Rates, Institute for International Economics, Washington, D.C.
Berben, R-P, and van Dijk, D. (1998), “Does the absence of cointegration explain the Typical Findings in Long-Horizon Regressions?” Econometrics Institute, Erasmus University, Report 9814.
Berkowitz, J., and Giorgianni, L. (2001), “Long-Horizon Exchange Rate Predictability?” Review of Economics and Statistics, Vol. 83, pp. 81-91.
Beveridge, S. and Nelson, C.R. (1981), “A New Approach to Decomposition of Economic Time Series into Permanent and Transitory Components with Particular Attention to Measurement of the ‘Business Cycle’”, Journal of Monetary Economics, Vol. 7, pp. 151-174.
Breuer, J.B. and Lippert, A.F. (1997), “Internal Relative Price Stationarity in Long-Run Purchasing Power Parity”, Review of International Economics, Vol. 5(2), pp. 195-203.
Brunetti, A., Kisunko, G. and Weder, B. 1997), “Institutional Obstacles to Doing Business. Region-by-Region Results from a Worldwide Survey of the Private Sector”, Policy Research Working Paper, no. 1759, the World Bank, April.
Bryant, R. (1983), “Alternative Futures for the International Monetary Fund”, Chapter 2,45 Washington: Brooking Institution (unpublished).
Calvo, G.A., Reinhart,C.M., and Vegh, C.A.(1995), “Targeting the Real Exchange Rate: Theory and Evidence”, Journal of Development Economics, Vol. 47, pp. 97-133
Cassel, G. (1916), “The Present Situation of the Foreign Exchanges”, Economic Journal, vol. 26 (101), pp. 62-65.
Cassel, G. (1918), “Abnormal Deviations in International Exchanges”, Economic Journal,vol. 28 (112), pp. 413-415.
Chinn, M.D., and Meese, R.A. (1995), “Banking on Currency Forecasts: How Predictable is Change in Money?” Journal of International Economics, Vol. 38, pp. 161-178.
Clarida, R. and Gali, J. (1995), “Sources of Real Exchange Rate Fluctuations: How Important are Nominal Shocks?”, Canargie-Rochester Series on Public Policy, Vol. 41, pp. 1-56.
Clark, P.B. and MacDonald, R. (1998), “Exchange Rates and Economic Fundamentals: A Methodological Comparison of BEERs and FEERs”, IMF Working Paper WP/98/67, May.
Clark, P.B. and MacDonald, R. (2000), “Filtering the BEER: A Permanent and Transitory Decomposition”, IMF Working Paper No. 144, August.
Crouchy-Veyrac, L. and Saint Marc, M. (1997), “The Natural Real Exchange Rate between the French Franc and Deutschmark”, in eds. J.L. Stein, P.R. Allen, et.al., Fundamental Determinants of Exchange Rates, Oxford: University Press.
Cushman, D.O. (2000), “The Failure of the Monetary Exchange Rate Model for the Canadian-U.S. dollar”, Canadian Journal of Economics, Vol. 33, pp. 591-603.
Dean, J.W., and Rajan, R.S. 2004, “Why and Whither China’s Reserves? Motives, Cost, Consequences and Putative Policies”, mimeo, University of Adelaide.
De Gregorio, J., Giovannini, A., and Krueger, T.H. (1994), “The Behavior of Nontradable Goods Prices in Europe: Evidence and Interpretation”, Review of International Economics, October, Vol. 2, No.3, pp. 284-305.
De Gregorio, J., Giovannini, A., and Wolf, H. (1994), “International Evidence on \Tradable and Non-tradable Inflation”, European Economic Review, June, Vol. 38, No.6, pp.1225-1244.
De Gregorio, J. and Wolf, H. (1994), “Terms of Trade, Productivity, and the Real Exchange Rate”, National Bureau Economic Research Working Paper, No. 4807,July.
Detken, C. and Martinez, C.M. (2001), “The Effective Euro Equilibrium Exchange Rate Since the 1970’s: A Structural NATREX Estimation”, European Central Bank(ECB) Working Paper.
Detken, C., Dieppe, A., Henry, J., Marin, C., and Smets, F. (2002), “Determinants of the Effective Real Exchange Rate of the Synthetic Euro: Alternative Methodological Approaches”, Australian Economic Papers, Vol.41, No.4, December, pp.404-436.
Dooley, M., Folkerts-Landau, D. and Garber, P. 2003, “An Essay on the Revived Bretton-Woods System”, NBER Working Paper No. 9971.
Dornbush, R. (1976), “Expectations and Exchange Rate Dynamics”, Journal of Political Economics, Vol. 84 (6), December, pp. 1161-1176.
Driver, R.L. and Westaway, P.F. (2004), “Concepts of Equilibrium Exchange Rates”, Working Paper no. 248, Bank of England, London, U.K.
Duval, R. (2002), “What Do We Know About Long-Run Equilibrium Real Exchange Rates? PPP vs Macroeconomic Approaches”, Australian Economic Papers, Vol. 41, No.4, December, pp. 382-403.
Egert, B. (2003), “Nominal and Real Convergence in Estonia: The Balassa-Samuelson(Dis)connection: Tradable Goods, Regulated Prices and Other Culprits”, Eesti Pank Working Paper No. 4.
Egert, B. (2004), “Assessing Equilibrium Exchange Rates in CEE Acceding Countries: Can We Have DEER with BEER without FEER? A Critical Survey of the Literature”, BOFIT Discussion Paper, No.1, Bank of Finland, Helsinki.
Egert, B., Halpern, L., and MacDonald, R.(2006), “Equilibrium Exchange Rates in Transition Economies: Taking Stock of the Issues”, Journal of Economic Surveys,Vol. 20, No. 2, pp. 257-268.
Federici, D. and Gandolfo, G. (2002), “Endogenous Growth in an Open Economy and the NATREX Approach to the Real Exchange Rate: The Case of Italy”, Australian Economic Papers, Vol.41, No.4, December, pp.499-518.
Frankel, J.A. (1986), “International Capital Mobility and Crowding-out in the U.S. economy: Imperfect Integration of Financial Markets or Goods Markets?”, in ed. Hafer, R.W., How Open is the U.S. economy?, Lexington: Lexington Books, pp.33-67.
Frenkel, J.A. (1981), “The Collapse of Purchasing Power Parities During the 1970’s”, European Economic Review, Vol. 16, No.1, May, pp. 145-165.
Giovannini, A. (1988), “Exchange Rates and Trade Good Prices”, Journal of International Economics, February, Vol. 24, No. 1/2, pp. 45-68.
Glen, J.D. (1992), “Real Exchange Rates in the Short, Medium, and Long-Run”, Journal of International Economics, Vol. 33 (1/2), August, pp. 147-166.
Goldstein, M., and Khan, M.S. (1985), “Income and Price Effects in Foreign Trade”, in eds. R.W. Jones and P.B. Kenen, Handbook of International Economics, Vol. 2, Amsterdam: North Holland, pp. 1041-1105.
Gonzalo, J. and Granger, C. (1995), “Estimation of Common Long-Memory Components in Cointegrated System”, Journal of Business and Economic Statistics, Vol. 13,pp. 27-35.
Goo, S.W. (2006), “Inflation and Exchange Rate Policy: The Experience of Indonesia, South Korea and Thailand”, mimeo, School of Economics, University of Adelaide.
Husted, S. and MacDonald, R. (1998), “The Monetary-Based Models of the Exchange Rate: A Panel Perspective”, Journal of International Financial Markets, Institutions and Money, Vol. 8, Issue 1, January, pp. 1-19.
---------------------------- (1999), “The Asian Currency Crises: Were Badly Driven Fundamentals to Blame?”, Journal of Asian Economics, Vol. 10, No. 4, Winter, pp.537-550.
International Monetary Fund (1998), Republic of Slovakia: recent Economic Developments, IMF Staff Country Report No. 60.
Isard, P. (1977), “How Far Can We Push the Law of One Price?” American Economic Review, December, Vol. 67, No.5, pp. 942-948.
Knetter, M.M. (1989), “Price Discrimination by U.S. and German Exporters”, American Economic Review, March, Vol. 79, No. 1, pp. 189-210.
--------------- (1993), “International Comparisons of Price to Market Behavior”, American Economic Review, June, Vol. 83, No. 3, pp. 473-486.
Koen, V., Boone, L., de Serres, A., and Fuchs, N. (2001), “Tracking the Euro”, Economics Department Working Paper, B0. 298, OECD.
Lim, G. (2000), “Misalignment and Managed Exchange Rate: An Application to the Thai Baht”, IMF Working Paper, No. 00/63, Washington, D.C.
--------. (2002), “Modeling the Interaction of Fundamental and Portfolio Exchange Rate Behavior: An Application to Australia and the ASEAN3”, Australian Economic Papers, Vol. 41, No.4, December, pp. 557-576.
Lothian, J.R., and Taylor, M.P. (1996), “Real Exchange Rate Behavior: The Recent Float from the Perspective of the Past Two Centuries”, Journal of Political Economy, Vol. 104(3), June, pp.488-509.
MacDonald, R. (1997), “What Determines Real Exchange Rate? The Long and Short of It”, IMF Working Paper No. 21.
------------------ (2000), “Concepts to Calculate Equilibrium Exchange Rates: An Overview”, Discussion Paper 3/00, Economic Research Group of the Deutsche Bundesbank, July.
----------------- (2002), “Modelling the Long-run Real Effective Exchange Rate of the New Zealand Dollar”, Australian Economic Papers, Vol. 41, No.4, December, pp. 519-537.
Mark, N.C. (1995), “Exchange Rates and Fundamentals: Evidence on Long-Horizon Predictability”, American Economic Review, Vol. 85, pp. 201-218.
Mark, N.C., and Sul, D. (2001), “Nominal Exchange Rates and Monetary Fundamentals Evidence from a Small Post-Bretton Woods Panel”, Journal of International Economics, Vol. 53, pp. 29-52.
Maseo-Fernandez, F., Osbat, C., and Schnatz, B. (2002), “Determinants of the Euro Real Effective Exchange Rate”, Australian Economic Papers, Vol. 41, No.4, December, pp. 437-461.
Montiel, P. (1997), “Exchange Rate Policy and Macroeconomic Management in ASEAN Countries”, in J. Hicklin, D. Robinson and A. Singh (eds), Macroeconomic Issues Facing ASEAN Countries, IMF Publication, Washington, D.C.
Nurkse, R. (1945), “Conditions of International Monetary Equilibrium”, Essay in International Finance, Princeton, NJ: International Finance Section, Princeton University.
Obstfeld, M., and Rogoff, K. (1995), “The Intertemporal Approach to the Current Account”, in eds. Grossman, G. and Rogoff, K., The Handbook of International Economics, Vol. 3, Amsterdam: Elsevier Press, pp. 1731-1799.
OECD (2001), “Tracking the Euro”, Economics Department Working Papers, No. 298(June).
Pontines, V. and Siregar, R. (2007), “The Yen, The US dollar and The Trade-Weighted Basket of Currencies: Does the choice of anchor currencies matter in identifying incidences of speculative attacks?”, Japan and the World Economy, Vol.19, pp.214-235.
Rahmatsyah, T., Rajaguru, G, and Siregar, R. 2002), “Exchange Rate Volatility, Trade & “Fixing for Life” in Thailand”, Japan and the World Economy, Vol 14, No.4, December, pp.445-470.
Rajan, R., and Siregar, R. (2002), “Choice of Exchange Rate Regime: Currency Board (Hong Kong) or Monitoring Board (Singapore)?” Australian Economic Papers, Vol.41, No.4, December, pp.538-556.
Rajan, R., Sen, R., and Siregar, R. (2004), “Misalignment of the Baht, Trade Imbalances and the Crisis in Thailand”, (with Rajan, R and Sen, R), The World Economy, Vol. 27, Issue.7, July, pp. 985-1012.
Rapach, D.E. and Wohar, M.E. (2002), “Testing the Monetary Model of the Exchange Rate Determination: New Evidence from a Century of Data”, Journal of International Economics, Vol. 58, pp. 359-385.
Richardson, J.D. (1978), “Some Empirical Evidence on Commodity Arbitrage and the Law of One Price”, Journal of International Economics, May, Vol. 8, No. 2, pp. 341-351.
Rogoff, K. (1996), “The Purchasing Power Parity Puzzle”, Journal of Economic Literature, June, Vol. 34, No. 2, pp. 647-668.
Siregar, R. (1999), “Real Exchange Rate Targeting and Inflation in Indonesia: Theory and Empirical Evidence”, Applied Financial Economics, Vol. 9, No. 4, August, pp.329-336.
Siregar, R., and Rajan, R. (2004), “Impacts of Exchange Rate Volatility on Indonesia’s Trade Performance in the 1990s”, Journal of the Japanese and International Economies, Vol. 18, Issue 2, pp. 218-240.
Stein, J.L. (1994), “The Natural Real Exchange Rate of the US Dollar and Determinants of Capital Flows”, in ed. J. Williamson, Estimating Equilibrium Exchange Rates, Institute for International Economics, Washington, D.C.
Stein, J.L. and Allen, P R (1995), Fundamental determinants of exchange rate, Oxford University Press, Oxford, U.K. Stein, J.L., and Paladino, G. (1998), “Recent Developments in International Finance: A Guide to Research”, Journal of Banking and Finance, Vol. 21, pg. 1685-1720.
Stein, J.L, and Paladino, G. (1999), “Exchange Rate Misalignments and Crises”, CESifo Working Paper, No. 205 (November).
Stein, J.L. (2002), “The Equilibirium Real Exchange Rate of the Euro: An Evaluation of Research”, Ifo Studien, Vol. 48, No.3, pp. 349-381.
Stock, J.H. and Watson, M.W. (1998), “Testing for Common Trends”, Journal of the American Statistical Association, Vol. 83, pp. 1097-1107.
Tybout, J.R. (2000), “Manufacturing Firms in Developing Countries: How Well They Do and Why?”, Journal of Economic Literature, March, Vol. 38, No. 1, pp. 11-44.
van Eden, I., Bin, L., Romyn, G., and Xiaguang, Y. (2001), “NATREX and Determination of Real Exchange Rate of RMB”, Journal of Systems Science and Complexity, Vol. 14, No.4, October, pp. 356-372.
Wei, S.-J., and Parsley, D. (1995), “Purchasing Power Disparity During the Recent Floating Rate Period: Exchange Rate Volatility, Trade Barriers and Other Culprits”, Quarterly Journal of Economics.
Wren-Lewis, S. (1992), “On the Analytical Foundations of the Fundamental Equilibrium Exchange Rate”, in ed. C. P. Hargreaves, Macroeconomic Modelling of the Long Run, Edward Elgar, England, pp.75-94.
Williamson, J. (1994), “Estimates of FEERs”, in ed. J. Williamson, Estimating Equilibrium Exchange Rates, Institute for International Economics, Washington,D.C.