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

May 1, 1998

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.

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:
https://doi.org/10.5089/9781451961683.001
Issue:
067
Series:
Working Paper No. 1998/067
Stock No:
WPIEA0671998
ISBN:
9781451961683
ISSN:
1018-5941

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