Abstract
This paper presents an extension of the macroeconomic exchange rate balance approach. This extension comprises two new aspects. Firstly, it is based on a multinational framework which allows for macroeconomic linkages between countries. Secondly, it uses a procedure that does not require a full modeling of the world economy to derive a consistent set of equilibrium exchange rates. The findings reveal that, in 2001, the dollar was overvalued against the euro and the yen. The paper also shows that this result depends heavily on the chosen notion of current account sustainability.
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Borowski, D., Couharde, C. The Exchange Rate Macroeconomic Balance Approach: New Methodology and Results for the Euro, the Dollar, the Yen and the Pound Sterling. Open Economies Review 14, 169–190 (2003). https://doi.org/10.1023/A:1022314013924
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DOI: https://doi.org/10.1023/A:1022314013924
- equilibrium exchange rate
- macroeconomic balance approach
- current account sustainability