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

2005 ◽  
Author(s):  
Tamim Bayoumi ◽  
Hamid Faruqee ◽  
Jaewoo Lee
Keyword(s):  
Exchange Rates ◽  
Theory And Practice ◽  
Exchange Theory ◽  
Fair Exchange ◽  
Equilibrium Exchange

scholarly journals A Fair Exchange? Theory and Practice of Calculating Equilibrium Exchange Rates

2005 ◽  
Vol 05 (229) ◽  
pp. 1 ◽  
Author(s):  
Jaewoo Lee ◽  
Hamid Faruqee ◽  
Tamim Bayoumi ◽  
◽  
◽  
...  
Keyword(s):  
Exchange Rates ◽  
Theory And Practice ◽  
Exchange Theory ◽  
Fair Exchange ◽  
Equilibrium Exchange

FEERs and the ERM∗

1991 ◽  
Vol 137 ◽  
pp. 45-50 ◽  
Author(s):  
John Williamson
Keyword(s):  
Exchange Rates ◽  
Final Section ◽  
Policy Implications ◽  
The Other ◽  
Equilibrium Exchange ◽  
The Right

A number of economists, including the author, were critical of the central rate that was chosen when sterling entered the ERM in October 1990, on the ground that it overvalued the pound. Specifically, the central rate against the other ERM currencies implied a higher value for the pound than that yielded by calculations of ‘fundamental equilibrium exchange rates’ (FEERs).The present paper aims to explain the concept of the FEER, introduced by the author in Williamson (1983), and argues that it provides the right criterion for assessing whether a currency is correctly valued. It also sketches the evidence for believing the pound's ERM central rate to be above the FEER. A final section considers the policy implications of the finding that sterling is overvalued.

Testing deviations from PPP and UIP: evidence from BRICS economies

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
K. P. Prabheesh ◽  
Bhavesh Garg
Keyword(s):  
Exchange Rates ◽  
Purchasing Power Parity ◽  
Structural Break ◽  
Unit Root Test ◽  
Power Parity ◽  
Frequency Dependent ◽  
Monthly Data ◽  
Content Type ◽  
Equilibrium Exchange ◽  
Data Frequency

Purpose This paper aims to investigate the interrelations between purchasing power parity (PPP) and uncovered interest parity (UIP) in BRICS economies, namely, Brazil, Russia, India, China and South Africa, by checking the validity of the capital-enhanced equilibrium exchange rate (CHEER) approach. Further, this study tests whether the CHEER results are data frequency-dependent. Design/methodology/approach The present study uses monthly data ranging from 1997M01 to 2016M12 and considers the US economy as the representative foreign country. The study uses structural break unit root test and structural break cointegration technique to test the presence of economic relationships between nominal exchange rates and each of the price and interest rate differentials. Then, the study examines the validity of the CHEER approach by testing the appropriate theoretical restrictions. Findings The cointegration results suggest the existence of two cointegrating vectors representing UIP and PPP conditions. For all countries, the data appear to support the hypothesis that the system contains UIP and PPP relations. However, each of the international parity hypotheses is strongly rejected when formulated in isolation and jointly, leading to repudiation of the CHEER validity. Further, it is found that the results are data frequency-dependent and suggest that higher frequencies should be used as they provide additional information. Originality/value First, the literature on equilibrium exchange rates in BRICS economies is scanty. BRICS economies are large-emerging economies and one of the fastest growing economies and thus entail an empirical enquiry on their exchange rates. Second, the empirical application has mainly used monthly data to test the validity of the CHEER approach. However, data frequencies could affect the results. To the best of the authors’ knowledge, this study is the first to check data frequency-dependency in examination of the CHEER approach.

On the Indeterminacy of Equilibrium Exchange Rates

1981 ◽  
Vol 96 (2) ◽  
pp. 207 ◽  
Author(s):  
John Kareken ◽  
Neil Wallace
Keyword(s):  
Exchange Rates ◽  
Equilibrium Exchange
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