Real Exchange Rates for the Year 2000

by Wren-Lewis, Simon; Driver, Rebecca

• ISBN13: 9780881322538
• ISBN10: 0881322539
• Format: Paperback
• Copyright: 1998-05-01
• Publisher: Peterson Inst for Intl Economics

Summary

This study estimates fundamental equilibrium exchange rates (FEERs) for the Group of Seven (G7) countries for 1995 and 2000. Three developments motivate this new analysis.

Author Biography

Simon Wren-Lewis is Bertie Black Professor of Business Economics at the University of Exeter Rebecca L. Driver is currently a specialist contractor at the Bank of England

Table of Contents

Preface	vii
Acknowledgments	xi
Introduction	1	(2)
What are Equilibrium Real Exchange Rates?	3	(12)
The Medium Term	4	(5)
Purchasing Power Parity	9	(4)
Hysteresis	13	(2)
Why Calculate FEERs?	15	(8)
The FEER and Fiscal Policy	15	(2)
Is the FEER a Normative Concept?	17	(2)
The FEER as a Forecast	19	(2)
FEERS and Exchange Rate Regimes	21	(2)
How to Calculate FEERs	23	(12)
The Costs of Simplification	25	(3)
Modeling Aggregate Trade	28	(1)
Limitations of the Demand-Curve Trade-Volume Specification	29	(3)
Modeling Debt Interest Flows	32	(3)
Estimating Trade Elasticities	35	(20)
Estimation Techniques	35	(5)
Estimates of Trade Volume Elasticites	40	(7)
Trade-Price Equations	47	(2)
Assumptions About Trend Output	49	(6)
FEER Estimates	55	(20)
Trend Current Account for 1995:H1	55	(3)
FEERs in 1995:H1	58	(5)
FEERs in 2000	63	(2)
FEERs and Current Parities	65	(2)
Implications for the Euro/US Dollar Rate	67	(1)
Sensitivity	68	(1)
Conclusions	69	(6)
Appendix A Current Account Targets	75	(42)
John Williamson
Molly Mahar
References for Appendix A	117	(2)
Appendix B Modeling the Impact of the Real Exchange Rate	119	(8)
Appendix C Estimation Details	127	(32)
Appendix D Data and Data Sources	159	(6)
References	165