FEERs and Uncertainty : Confidence Intervals for the Fundamental Equilibrium Exchange Rate of the Canadian Dollar

Author/Editor:

Charles Frederick Kramer

Publication Date:

July 1, 1996

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

Models of Fundamental Equilibrium Exchange Rates (FEERs) impose internal and external balance, and so appeal to fundamental notions of equilibrium from a macroeconomic perspective. However, the need to estimate internal and external imbalances creates uncertainty in the approach. Parameters must be estimated, and equilibrium balances must be gauged using judgement. Hence it makes sense to consider the FEER as a statistical estimate rather than a fixed number, and to calculate confidence intervals for the FEER. This paper calculates such confidence intervals with data for Canada, under a variety of assumptions. The estimated confidence intervals are quite wide, principally because of uncertainty about price elasticities in the underlying trade equations.

Series:

Working Paper No. 96/68

Notes:

Models of Fundamental Equilibrium Exchange Rates (FEERs).

English

Publication Date:

July 1, 1996

ISBN/ISSN:

9781451848960/1018-5941

Stock No:

WPIEA0681996

Price:

$15.00 (Academic Rate:$15.00)

Format:

Paper

Pages:

28

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