CEPII, Recherche et Expertise sur l'economie mondiale
Equilibrium Exchange Rates: a Guidebook for the Euro-Dollar Rate

Agnès Bénassy-Quéré
Sophie Béreau
Valérie Mignon

 Highlights :

 Abstract :
In this paper, we investigate different views of equilibrium exchange rates within a single, stock-flow adjustment framework. We then compare FEER and BEER estimations of equilibrium exchange rates based on the same, econometric model of the net foreign asset position, with special focus on the euro-dollar rate. These estimations suggest that, although more robust to alternative assumptions, the BEER approach may rely on excessive confidence on past behaviors in terms of portfolio allocation. Symmetrically, FEERs may underestimate the plasticity of international capital markets because they focus on the adjustment of the trade balance.

 Keywords : Equilibrium exchange rate | Euro-dollar | FEER | BEER | Global imbalances

 JEL : F31, C23
CEPII Working Paper
N°2008-02, March 2008

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 Fields of expertise

Money & Finance