Equilibrium exchange rate

Equilibrium exchange rate

Exchange rate at which demand for a currency is equal to the supply of the currency in the economy.

Equilibrium Exchange Rate

The exchange rate at which the demand for a currency and supply of the same currency are equal. The equilibrium exchange rate indicates that the price of exchanging two currencies will remain stable. See also: Equilibrium rate of interest.
References in periodicals archive ?
We would therefore judge that the UK cannot be too far from a sustainable equilibrium exchange rate for sterling outside EMU, although we would judge that the pound may be marginally overvalued.
A common definition of an equilibrium exchange rate is the exchange rate level which is consistent with internal and external balance in the economy.
In this article, three major approaches to identifying the equilibrium exchange rate are implemented: long-run purchasing power parity (PPP), a productivity-based model, and a monetary model of the nominal exchange rate.
However, as a large percentage of transactions become unrestricted, the equilibrium exchange rate becomes more volatile.
Tillers (2003), "Estimates of Equilibrium Exchange Rate In Latvia.
The approach followed is based on the behavioural equilibrium exchange rate approach by Clark and MacDonald (1998), where the exchange rate is influenced by a number of fundamental and transitory factors.
One commonly used analytical framework to examine a country's balance of payments, the so-called underlying balance approach, identifies the equilibrium exchange rate as one that results in an overall equilibrium in the balance of payments--that is, normal capital inflows plus the underlying current account position sum to zero.
There are conceptual and empirical issues that what exactly the value of long-run equilibrium exchange rate.
According to most calculations, the actual real exchange rate has not deviated significantly from its estimated equilibrium value throughout the period and is currently close to the equilibrium exchange rate.
It is assumed that the krona will gradually adjust toward its underlying equilibrium exchange rate.
This is known as the fundamental equilibrium exchange rate (FEER) and is the rate consistent with an economy growing at its 'natural' rate with unemployment at the NAIRU, and where any deviation of the current account from balance is sustainable through inflows or outflows of capital over the medium term.

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