Estimation of Equilibrium Exchange Rates in the Waemu: A Robustness Approach

56 Pages Posted: 23 Aug 2007

See all articles by Stéphane Roudet

Stéphane Roudet

International Monetary Fund (IMF)

Magnus Saxegaard

International Monetary Fund (IMF)

Charalambos G. Tsangarides

International Monetary Fund (IMF)

Date Written: August 2007

Abstract

Using the FEER approach we investigate the long-run equilibrium paths of the real effective exchange rates (REERs) of countries in the West African Economic and Monetary Union (WAEMU). In an attempt to address econometric estimation uncertainty, we employ both single-country (Johansen and ARDL) and panel-data (FMOLS and PMG) cointegration techniques. We find that (i) much of the long-run behavior of REERs in WAEMU countries can be explained by fluctuations in terms of trade, government consumption, investment, and productivity; (ii) the use of different econometric techniques suggests that there is significant uncertainty about the path of the underlying equilibrium REERs and the degree of exchange rate misalignment, which underscores the need for robustness analyses in exchange rate modeling; and (iii) results from panel-data cointegration may sometimes be useful, but should always be complemented with single-country estimations to ensure that the results take into account country-specific characteristics.

Keywords: Working Paper, West African Economic and Monetary Union, Exchange rates, Real effective exchange rates

Suggested Citation

Roudet, Stéphane and Saxegaard, Magnus and Tsangarides, Charalambos G., Estimation of Equilibrium Exchange Rates in the Waemu: A Robustness Approach (August 2007). IMF Working Paper No. 07/194, Available at SSRN: https://ssrn.com/abstract=1007942

Stéphane Roudet

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Magnus Saxegaard (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Charalambos G. Tsangarides

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

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