TY - CEPII
A1 - Virginie Coudert
A1 - Cécile Couharde
A1 - Valérie Mignon
TI - On currency misalignments within the euro area
IS - 2012-07
T3 - Working Papers
KW - EURO AREA
KW - REAL EQUILIBRIUM EXCHANGE RATES
KW - MISALIGNMENTS
KW - PANEL COINTEGRATION
N2 - Although nominal parities have been completely pegged within the euro area since the launch of the single currency, real effective exchange rates have continued to vary under the effect of inflation disparities, exhibiting a strong appreciation in the peripheral countries. In this paper, we assess real exchange rate misalignments for euro area countries by using a Behavioral Equilibrium Exchange Rate (BEER) approach on the period 1980-2010. The results show that the peripheral member countries have been suffering from increasingly overvalued exchange rates since the mid-2000s, as their real appreciation has not stemmed from improving fundamentals in terms of productivity or external position. In addition, currency misalignments have been increased on average for all euro area countries since the monetary union, while becoming more persistent. More worryingly, our findings highlight different patterns across members, as misalignments have been larger and more persistent in peripheral countries than in core countries.
ER -