Exchange Rates and Economic Fundamentals: A Methodological Comparison of BEERs and FEERs

Author/Editor:

Ronald MacDonald ; Peter B. Clark

Publication Date:

May 1, 1998

Electronic Access:

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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 compares two approaches for examining the extent to which a country’s actual real effective exchange rate is consistent with economic fundamentals: the FEER approach, which involves calculating the real exchange rate that equates the current account at full employment with sustainable net capital flows, and the BEER approach, which uses econometric methods to establish a behavioral link between the real rate and relevant economic variables. An exchange rate model is estimated for the G-3 currencies to provide illustrative comparisons of BEERs and FEERs.

Series:

Working Paper No. 1998/067

Subject:

Balance of payments Capital account Current account Exchange rates Foreign exchange Real effective exchange rates Real exchange rates

English

Publication Date:

May 1, 1998

ISBN/ISSN:

9781451961683/1018-5941

Stock No:

WPIEA0671998

Pages:

38

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