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Exchange Rate Dynamics and Fundamental Equilibrium Exchange Rates

Author

Listed:
  • Jamel Saadaoui

    (University of Paris North)

Abstract

The paper investigates if the most popular alternative to the purchasing parity power approach (PPP) to estimate equilibrium exchange rates, the fundamental equilibrium exchange rate (FEER) influences exchange rate dynamics in the long run. For a large panel of industrialized and emerging countries and on the period 1982-2007, we detect the presence of unit roots in the series of real effective exchange rates and in the series of FEERs. We find and estimate a cointegration relationship between real effective exchange rates and FEERs. The results show that the FEER has a positive and significant influence on exchange rate dynamics in the long run.

Suggested Citation

  • Jamel Saadaoui, 2011. "Exchange Rate Dynamics and Fundamental Equilibrium Exchange Rates," Economics Bulletin, AccessEcon, vol. 31(3), pages 1993-2005.
    • Handle: RePEc:ebl:ecbull:eb-11-00033
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    File URL: http://www.accessecon.com/Pubs/EB/2011/Volume31/EB-11-V31-I3-P180.pdf
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    References listed on IDEAS

    as
    1. Seeun Jeong & Jacques Mazier & Jamel Saadaoui, 2010. "Exchange Rate Misalignments at World and European Levels : A FEER Approach," Post-Print hal-02169238, HAL.
    2. Didier Borowski & Cecile Couharde, 2003. "The Exchange Rate Macroeconomic Balance Approach: New Methodology and Results for the Euro, the Dollar, the Yen and the Pound Sterling," Open Economies Review, Springer, vol. 14(2), pages 169-190, April.
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    13. Nabil Aflouk & Se-Eun Jeong & Jacques Mazier & Jamel Saadaoui, 2010. "Exchange Rate Misalignments and International Imbalances a FEER Approach for Emerging Countries," International Economics, CEPII research center, issue 124, pages 31-74.
    14. Se-Eun Jeong & Jacques Mazier & Jamel Saadaoui, 2010. "Exchange Rate Misalignments at World and European Levels: a FEER Approach," International Economics, CEPII research center, issue 121, pages 25-58.
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    21. John Williamson, 1994. "Estimating Equilibrium Exchange Rates," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 17, April.
    22. Nabil Aflouk & Se-Eun Jeong & Jacques Mazier & Jamel Saadaoui, 2011. "Exchange Rate Misalignments and World Imbalances: a FEER Approach for Emerging Countries," Post-Print halshs-00484808, HAL.
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    24. Su Zhou, 1993. "Fundamental equilibrium exchange rates and exchange rate dynamics," Open Economies Review, Springer, vol. 4(2), pages 189-209, June.
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    Cited by:

    1. repec:hal:cepnwp:hal-01394814 is not listed on IDEAS
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    3. Vincent Duwicquet & Jacques Mazier & Jamel Saadaoui, 2012. "Exchange Rate Misalignments, Fiscal Federalism and Redistribution," Post-Print hal-02169241, HAL.
    4. Vincent Duwicquet & Jacques Mazier & Jamel Saadaoui, 2013. "Désajustements de change, fédéralisme budgétaire et redistribution. Comment s'ajuster en union monétaire," Revue de l'OFCE, Presses de Sciences-Po, vol. 0(1), pages 57-96.
    5. Saadaoui, Jamel, 2012. "Global Imbalances: Should We Use Fundamental Equilibrium Exchange Rates?," MPRA Paper 42554, University Library of Munich, Germany.
    6. Jamel Saadaoui, 2016. "Post-Brexit FEER," Working Papers of BETA 2016-51, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
    7. repec:hal:cepnwp:halshs-00829460 is not listed on IDEAS
    8. Yu Hsing, 2015. "Short-Run Determinants of the USD/MYR Exchange Rate," Economics Bulletin, AccessEcon, vol. 35(1), pages 97-105.
    9. Jamel Saadaoui, 2016. "Sur la situation des mésalignements de taux de change après le Brexit," Bulletin de l'Observatoire des politiques économiques en Europe, Observatoire des Politiques Économiques en Europe (OPEE), vol. 35(1), pages 9-13, December.
    10. Jamel Saadaoui, 2016. "Post-Brexit FEER," Working Papers hal-01394814, HAL.
    11. Jamel Saadaoui & Jacques Mazier & Nabil Aflouk, 2013. "On the determinants of exchange rate misalignments," Applied Economics Letters, Taylor & Francis Journals, vol. 20(18), pages 1608-1610, December.
    12. repec:hal:cepnwp:halshs-00750551 is not listed on IDEAS
    13. Vincent Duwicquet & Jacques Mazier & Pascal Petit & Jamel Saadaoui, 2015. "The Future of the Euro," Post-Print hal-01399157, HAL.
      • Duwicquet, Vincent & Mazier, Jacques & Petit, Pascal & Saadaoui, Jamel, 2015. "The future of the euro," MPRA Paper 67690, University Library of Munich, Germany.
    14. Vincent Duwicquet & Jacques Mazier & Jamel Saadaoui, 2012. "Exchange Rate Misalignments, Fiscal Federalism and Redistribution: How to Adjust in a Monetary Union," Post-Print halshs-00848886, HAL.
    15. Saadaoui, Jamel, 2015. "Global imbalances: Should we use fundamental equilibrium exchange rates?," Economic Modelling, Elsevier, vol. 47(C), pages 383-398.
    16. Saadaoui, Jamel, 2012. "Déséquilibres globaux, taux de change d’équilibre et modélisation stock-flux cohérente [Global Imbalances, Equilibrium Exchange Rates and Stock-Flow Consistent Modelling]," MPRA Paper 51332, University Library of Munich, Germany.
    17. Jamel Saadaoui, 2017. "Internal Devaluations and Equilibrium Exchange Rates: New Evidences and Perspectives for the EMU," Working Papers halshs-01633389, HAL.
    18. Jamel Saadaoui, 2017. "Internal Devaluations and Equilibrium Exchange Rates: New Evidences and Perspectives for the EMU," CEPN Working Papers halshs-01633389, HAL.
    19. Jamel Saadaoui, 2013. "Global Imbalances: Should We Use Fundamental Equilibrium Exchange Rates?," Post-Print halshs-00861163, HAL.
    20. Jamel Saadaoui, 2018. "Internal Devaluations and Equilibrium Exchange Rates: new evidences and perspectives for the EMU," Post-Print hal-02168395, HAL.

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    More about this item

    Keywords

    Fundamental equilibrium exchange rates; Panel unit root tests; Global imbalances; Fully modified ordinary least square; Dynamic ordinary least square;
    All these keywords.

    JEL classification:

    • F0 - International Economics - - General
    • C2 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables

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