Exchange Rate Models, Long Run Equilibrium, Dynamics and Hysteresis

Revue de l'OFCE, No. 93, April 2005

42 Pages Posted: 10 Oct 2005

See all articles by Antoine Bouveret

Antoine Bouveret

European Securities and Markets Authority

Henri Sterdyniak

Observatoire Fran├žais des Conjonctures Economiques (OFCE)

Abstract

Forecasting exchange rates remains a tricky issue for economists. In spite of a theoretical consistent framework, macroeconomic models fail to beat random walk models and market expectations doesn't have any predictive power. This article addresses some problems of exchange rate macroeconomic modelling. The first part discusses long run equilibrium exchange rate theories (FEER, BEER, NATREX). The second part presents a small macroeconomic model of exchange rate dynamics; it considers several modelling alternatives - monetary policy specification, prices-wages loop, portfolio and patrimonial effects - and analyzes their impacts on long run and dynamic properties. The third part introduces explicitly fiscal policy specifications. The last part gives an example of a model with hysteresis, where temporary shocks influence the long run equilibrium exchange rate.

Note: Downloadable document is in French.

Keywords: Equilibrium exchange rates, DEER, FEER, BEER, NATREX, exchange rates dynamics

JEL Classification: F31, F32, F41, F47

Suggested Citation

Bouveret, Antoine and Sterdyniak, Henri, Exchange Rate Models, Long Run Equilibrium, Dynamics and Hysteresis. Revue de l'OFCE, No. 93, April 2005, Available at SSRN: https://ssrn.com/abstract=812904

Antoine Bouveret (Contact Author)

European Securities and Markets Authority ( email )

103 Rue de Grenelle
Paris, IDF 75007
France

HOME PAGE: http://www.esma.europa.eu

Henri Sterdyniak

Observatoire Fran├žais des Conjonctures Economiques (OFCE) ( email )

69 Quai d'Orsay
Paris 75007
France

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