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427 - Comparing alternative methodologies for real exchange rate assessment - Matteo Salto and Aless

Matteo Salto, Alessandro Turrini (European Commission)

Comparing alternative methodologies for real exchange rate assessmentpdf(494 kB) Choose translations of the previous link 

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This paper compares alternative methodologies for estimating real exchange rate misalignment for EU countries. It is shown that current account-based approaches (based on NFA stabilisation and current account norms) and relative-price based approaches (BEER and PPP-based) deliver broadly consistent assessments, however sometimes differences are non-negligible. Current account-based misalignment appears to be driven to a larger extent by shocks affecting domestic absorption and national savings and quite often becomes manifest before price-based misalignment. All misalignment measures, and especially the BEER, are related with medium-term developments in real exchange rates, while only current-account based misalignment is a significant predictor of forthcoming current account developments.

(European Economy. Economic Papers. 427. September 2010. Brussels. PDF. 56pp. Tab. Graph. Bibliogr. Free.)

KC-AI-10-427-EN-N (online)
ISBN 978-92-79-14913-9 (online)
ISSN 1725-3187
doi:10.2765/44608 (online)

JEL classification: F31, F32

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