Deer Hunting : Misalignment, Debt Accumulation, and Desired Equilibrium Exchange Rates

Author/Editor:

Mark P. Taylor ; Michael J. Artis

Publication Date:

June 1, 1993

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:

This paper deals with hysteresis in the desired equilibrium exchange rate (DEER) arising from misalignment. When the actual real exchange rate departs from its DEER value, current account realizations--and consequently, debt service obligations--will differ from those assumed in the initial DEER calculation, necessitating its recomputation. The paper derives a formal expression for this hysteresis effect in the DEER, studies the convergence properties of a system in which the evolution of actual exchange rates depends on the DEER and provides illustrative calculations of its historical significance. Finally, the paper derives and applies rules of thumb for computing the hysteresis effect when considering the rate of approach of an exchange rate to its DEER value.

Series:

Working Paper No. 93/48

Subject:

Notes:

This paper deals with hysteresis in the desired equilibrium exchange rate (DEER) arising from misalignment.

English

Publication Date:

June 1, 1993

ISBN/ISSN:

9781451972269/1018-5941

Stock No:

WPIEA0481993

Format:

Paper

Pages:

36

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