Estimating the equilibrium real exchange rate : an application to Finland /
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Author / Creator: | Feyzioğlu, Tarhan N. |
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Imprint: | [Washington, D.C.] : International Monetary Fund, European I Dept., ©1997. |
Description: | 1 online resource (24 pages) : illustrations |
Language: | English |
Series: | IMF working paper, 2227-8885 ; WP/97/109 IMF working paper ; WP/97/109. |
Subject: | |
Format: | E-Resource Book |
URL for this record: | http://pi.lib.uchicago.edu/1001/cat/bib/12497724 |
Summary: | There is a wealth of theoretical and empirical work on the determinants of the equilibrium real exchange rate. One important strand of the literature is associated with Williamson's seminal work (Williamson 1985), which has its roots in an approach developed at the IMF (Artus 1977).2 Williamson defines the fundamental equilibrium exchange rate, FEER, as the rate that is consistent with the simultaneous achievement of internal and external balance. Internal balance is defined as the level of economic activity that keeps the inflation rate constant. In Williamson's approach, the concept of external balance contains a normative element: the external position is balanced if the external current account (once adjusted for cyclical movements) can be regarded not only as sustainable (that is, meeting the country's intertemporal budget constraint), but also as "appropriate" (for example, based on desired levels of saving and investment). In order to determine the FEER, it is first necessary to formulate an econometric model for the trade sector that captures the relationships among output, current account, demand, and competitiveness. The FEER is then calculated as the exchange rate that maintains internal and external equilibrium. A critical summary of this approach by Black (1994) points out that serious questions remain concerning the normative choices on the model to be used, particularly the target for the current account. |
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Physical Description: | 1 online resource (24 pages) : illustrations |
Format: | Master and use copy. Digital master created according to Benchmark for Faithful Digital Reproductions of Monographs and Serials, Version 1. Digital Library Federation, December 2002. |
Bibliography: | Includes bibliographical references (pages 22-24). |
ISBN: | 128201482X 9781282014824 1451898754 9781451898750 1462396348 9781462396344 1452726027 9781452726021 9786613796059 6613796050 9781451853179 1451853173 |
ISSN: | 2227-8885 ; |