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The Euro/Dollar Equilibrium Real Exchange Rate: A Continuous Time Approach

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  • Marianna Belloc
  • Daniela Federici
  • Giancarlo Gandolfo

Abstract

This paper analyses and compares different empirical approaches to the euro/dollar real equilibrium exchange rate. We first survey the alternative approaches present in the literature. Then we focus on the NATural Real EXchange rate and discuss the distinction between reduced form equations and structural estimation methods. Finally, we introduce the continuous time approach and illustrate a two-country model which is specified and estimated in continuous time. The simulated euro/dollar real equilibrium level provides a yardstick against which the misalignment of the actual real exchange rate is evaluated.

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  • Marianna Belloc & Daniela Federici & Giancarlo Gandolfo, 2008. "The Euro/Dollar Equilibrium Real Exchange Rate: A Continuous Time Approach," Economia politica, Società editrice il Mulino, issue 2, pages 243-264.
    • Handle: RePEc:mul:jb33yl:doi:10.1428/27393:y:2008:i:2:p:243-264
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    Cited by:

    1. Alessandro Flamini, 2012. "Interest Rate Forecasts in Inflation Targeting Open-Economies," Economia politica, Società editrice il Mulino, issue 3, pages 381-408.
    2. Giancarlo Gandolfo, 2015. "The Tobin tax in a continuous-time non-linear dynamic model of the exchange rate," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 39(6), pages 1629-1643.
    3. Federici, Daniela & Gandolfo, Giancarlo, 2012. "The Euro/Dollar exchange rate: Chaotic or non-chaotic? A continuous time model with heterogeneous beliefs," Journal of Economic Dynamics and Control, Elsevier, vol. 36(4), pages 670-681.
    4. Daniela Federici & Giancarlo Gandolfo, 2011. "The Euro/Dollar Exchange Rate: Chaotic or Non-Chaotic?," CESifo Working Paper Series 3420, CESifo.

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