Author:
Barrell Ray,In't Veld J.W.
Abstract
The concept of the Fundamental Equilibrium Exchange Rate (FEER) was first used in Williamson (1983) to calculate the misalignments of the exchange rates for major currencies, and as a basis for his target zone proposal. In this note we use the same concept in a different context, that of the relations amongst the European economies which are members of the ERM, a system which is evolving towards monetary union. The first section reviews the concept of the FEER and its use in policy analysis. The second section relates this to the analysis of real exchange rates and external balance within a potential monetary union. The third section includes new estimates of FEERs using the most recent version of our world model, and considers the possible future evolution of FEERs in the context of EMU, including some tests of the sensitivity of these estimates to parametric change.
Publisher
Cambridge University Press (CUP)
Subject
General Economics, Econometrics and Finance
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