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N° 2006-20 |
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| December 2006 |
| World Consistent Equilibrium Exchange Rates |
Agnès Bénassy-Quéré
Amina Lahrèche-Révil
Valérie
Mignon |
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| This paper proposes a systematic analysis of the problem of world consistency when deriving
equilibrium exchange rates. World inconsistency can arise for two reasons. First, real effective
misalignments of currencies out of the considered sample are implicitly assumed to be
the mirror image of those of the currencies under review. Second, only N − 1 independent
bilateral equilibrium exchange rates can be derived from a set of N effective rates. Here we
measure the extent of these two problems by estimating equilibrium exchange rates for 15
countries of the G20 in effective as well as bilateral terms and by varying the assumptions
concerning the rest of the world and the numeraire currency. Our results show that the way the
rest of the world is tackled has a major impact on the calculation of effective misalignments
and especially bilateral misalignments. |
Abstract |
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| Equilibrium exchange rates; BEER approach; world consistency |
Keywords |
| F31; C23 |
JEL classification |
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