Resource title

Concepts to Calculate Equilibrium Exchange Rates: An Overview

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Resource description

In this paper we present a critical overview of differnt methods of constructing an equilibrium exchange rate. The recent literature on purchasing power parity (PPP) indicates that on its own PPP is not a good vehicle for defining an equilibrium exchange rate. Rather, we argue that the latter can only be recover from a model in which the real determinants of exchange rates are explicitly modelled. The advantages and disadvantages of various such models are discussed. In particular, the internal-external balance approach to defining an equilibrium real exchange rate is disccused, and this method is compared to the so-called behavioural equilibrium approach. Finally, an approach which uses purely time series methods to construct an equilibrium exchange rate is also discussed.

Resource author

Ronald MacDonald

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Resource language

eng

Resource content type

text/html

Resource resource URL

http://hdl.handle.net/10419/19531

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Adapt according to the presented license agreement and reference the original author.