An Update of the Bank of Italy Methodology Underlying the Estimation of Price-Competitiveness Misalignments

20 Pages Posted: 28 May 2020

Date Written: April 27, 2020

Abstract

This paper documents the recent innovations to the Bank of Italy methodology underlying the estimation of price-competitiveness misalignments , first put forward in Giordano (2018); it also provides the most recent misalignment estimates for the euro area and for its four main economies, based on five alternatively deflated indicators. The extension of the sample period, the recalibration of the trade weights employed and the significant data revisions and refinements introduced have not qualitatively modified the assessment of misalignments since 1999 for the afore-mentioned economies, although point estimates have changed non-negligibly. In the first half of 2019, no significant price competitiveness misalignment is recorded for Italy and for the euro area as a whole, whereas for France, Germany and Spain there is still evidence of a modest undervaluation.

Keywords: price competitiveness, real effective exchange rate, equilibrium exchange rate, external imbalances

JEL Classification: E31, F00, F31

Suggested Citation

Giordano, Claire, An Update of the Bank of Italy Methodology Underlying the Estimation of Price-Competitiveness Misalignments (April 27, 2020). Bank of Italy Occasional Paper No. 556, Available at SSRN: https://ssrn.com/abstract=3612758 or http://dx.doi.org/10.2139/ssrn.3612758

Claire Giordano (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

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