Robustness of Equilibrium Exchange Rate Calculations to Alternative Assumptions and Methodologies

By Peter B. Clark, Steven A. Symansky, Tamim Bayoumi, Mark P. Taylor

February 1, 1994

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Format: Chicago

Peter B. Clark, Steven A. Symansky, Tamim Bayoumi, and Mark P. Taylor Robustness of Equilibrium Exchange Rate Calculations to Alternative Assumptions and Methodologies, (USA: International Monetary Fund, 1994) accessed November 21, 2024

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 explores a number of methodological issues that arise in the calculation of equilibrium exchange rates, which are identified in this paper as those real effective exchange rates consistent with macroeconomic equilibrium, i.e., internal and external balance. A partial equilibrium, comparative static analysis is presented and the methodology is applied to the break-up of the Bretton Woods exchange rate system. Then the dynamic interaction between the current account and the stock of net foreign assets is examined. Finally, the analysis uses a more general equilibrium approach by relying on simulations using MULTIMOD, a multicountry econometric model. The paper demonstrates the extent to which the equilibrium exchange rate calculations depend upon alternative assumptions regarding factors that affect internal and external balance. In addition, results obtained using the comparative static and dynamic macroeconomic approaches are compared.

Subject: Balance of payments, Current account, Exchange rates, Foreign exchange, International trade, Real effective exchange rates, Real exchange rates, Trade balance

Keywords: Bretton Woods exchange rate system, Canadian dollar, Current account, Current account position, DEER calculation, Deutsche mark, Equilibrium exchange rate, Europe, Exchange rate movement, Exchange rates, GDP ratio, Pound sterling, Real effective exchange rates, Real exchange rates, Trade balance, U.S. dollar, WP

Publication Details

Pages:

50
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 1994/017
Stock No:

WPIEA0171994
ISBN:

9781451843477
ISSN:

1018-5941

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