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.
Appreciate the
equilibrium exchange rate through positive supply-side measures in Germany (any candidates?
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.
