## A Fair Exchange? Theory and Practice of Calculating Equilibrium Exchange Rates

_IMF Working Papers, December 1, 2005_

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## Bibliographic details
- Authors: Jaewoo Lee, Hamid Faruqee, Tamim Bayoumi
- Published: December 1, 2005
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451862485.001

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### Research objective and approach
- Develop a theory-based model of equilibrium exchange rates that incorporates factors found to matter empirically.
- Provide insights into how variables should be measured and what cross-country restrictions are appropriate.
- Estimate the model using a panel of 12 industrial countries.

### Key findings
- The model fits the data relatively well.
- The model implies relatively fast adjustment to equilibrium.
- The model outperforms a random walk at longer horizons.
- The rate of adjustment depends on the distance from equilibrium, suggesting that part of the explanation for slow adjustment is inaccurate measures of equilibrium.

### Data and scope
- Panel of 12 industrial countries.
- Pages: 28
- Volume: 2005
- Issue: 229
- Series: Working Paper No. 2005/229
- DOI: https://doi.org/10.5089/9781451862485.001
- Stock No: WPIEA2005229
- ISBN: 9781451862485
- ISSN: 1018-5941
- Publication date: December 1, 2005

### Subject areas and keywords
- Subject: Exchange rates, Foreign assets, Manufacturing, Purchasing power parity, Real exchange rates
- Keywords: exchange rate, WP

_IMF Working Paper No. 2005/229 (December 1, 2005)._

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_Source: https://www.imf.org/en/publications/wp/issues/2016/12/31/a-fair-exchange-theory-and-practice-of-calculating-equilibrium-exchange-rates-18660_