The Level Reer Model in the External Balance Assessment (EBA) Methodology

41 Pages Posted: 17 Oct 2019

See all articles by Rui C. Mano

Rui C. Mano

International Monetary Fund

Carolina Osorio-Buitron

International Monetary Fund (IMF)

Luca A. Ricci

International Monetary Fund (IMF) - Research Department

Jose Vargas

International Monetary Fund (IMF)

Date Written: September 2019

Abstract

This paper offers an empirical model of the drivers of the level of the Real Effective Exchange Rate (REER) that is now part of the IMF's methodology for the assessment of external positions, including exchange rates. It constructs a measure of the level of the REER and it offers a panel regression that considers a large number of cross-sectional and time varying factors, guided by the extensive literature. Its main contribution is to enhance our understanding of the cross-sectional determinants of the level of the REER, while taking into account the time-series drivers. The framework accounts for the much larger cross-sectional variation of the level REER, and can better explain the time series variation of level REER when these are based on GDP-deflators rather than on consumer price indices. The latter suggest there may be merits to broadening the assessments to include such measures, although further analysis is required.

Keywords: Real exchange rate assessments; external imbalances

JEL Classification: F31, F32, O24

Suggested Citation

Mano, Rui C. and Osorio-Buitron, Carolina and Ricci, Luca Antonio and Vargas, Jose, The Level Reer Model in the External Balance Assessment (EBA) Methodology (September 2019). IMF Working Paper No. 2019/192, Available at SSRN: https://ssrn.com/abstract=3471383

Rui C. Mano (Contact Author)

International Monetary Fund ( email )

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

HOME PAGE: http://sites.google.com/site/ruimano/

Carolina Osorio-Buitron

International Monetary Fund (IMF) ( email )

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

Luca Antonio Ricci

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States
202-623-6007 (Phone)
202-623-4072 (Fax)

Jose Vargas

International Monetary Fund (IMF) ( email )

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

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