Equilibrium exchange rate: Other Approaches

Equilibrium exchange rate

Equilibrium exchange rate: Purchasing Power Parity (PPP) Reconsidered

Equilibrium exchange rate: Fundamental Equilibrium Exchange Rate

Equilibrium exchange rate: Behavioral Equilibrium Exchange Rate

Equilibrium exchange rate: Natural Real Exchange Rate

Equilibrium exchange rate: New Open Economy Macroeconomic Class of Models

A somewhat different way of measuring equilibriumexchange rates is to use a time series estimator to decompose a real exchange rate into its permanent and transitory components and to interpret the permanent component as a measure of equilibriumand the distance between the permanent and actual exchange rate as the degree of misalignment. The permanent equilibriumexchange rate has been calculated using a variety of different econometric estimators. This approach often gives time series profiles of the equilibrium exchange rate, which are similar to those created using the BEER and NATREXmethods, and is often used as a robustness check on estimates derived from these approaches.

To sum up, there is now a wide range of alternative real approaches to measuring equilibrium exchange rates. Indeed, central banks and practitioners often need to use a combination of these approaches when assessing whether a currency is over- or undervalued.