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

Author(s): Matteo Salto, Alessandro Turrini (European Commission)

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

Summary for non-specialistspdf(70 kB) Choose translations of the previous link 

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 (online)
doi: 10.2765/44608 (online)

JEL classification: F31, F32

Economic Papers are written by the staff of the Directorate-General for Economic and Financial Affairs, or by experts working in association with them. The Papers are intended to increase awareness of the technical work being done by staff and to seek comments and suggestions for further analysis. The views expressed are the author’s alone and do not necessarily correspond to those of the European Commission.

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