Exchange Rates and Economic Fundamentals: A Methodological Comparison of BEERs and FEERs
May 1, 1998
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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.
Subject: Balance of payments, Capital account, Current account, Exchange rates, Foreign exchange, Real effective exchange rates, Real exchange rates
Keywords: BEER analysis, BEER estimate, Capital account, Current account, equilibrium exchange rate, Exchange rates, FEER approach, FEER calculation, FEER exchange rate measure, Real effective exchange rates, Real exchange rates, U.S. dollar, WP
Pages:
38
Volume:
1998
DOI:
Issue:
067
Series:
Working Paper No. 1998/067
Stock No:
WPIEA0671998
ISBN:
9781451961683
ISSN:
1018-5941
