Robustness of Equilibrium Exchange Rate Calculations to Alternative Assumptions and Methodologies

Download or read book Robustness of Equilibrium Exchange Rate Calculations to Alternative Assumptions and Methodologies written by Peter B. Clark and published by . This book was released on 1994 with total page 42 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper explores a number of methodological issues that arise in the calculation of equilibrium exchange rates, which are identified in this paper as those real effective exchange rates consistent with macroeconomic equilibrium, i.e., internal and external balance. A partial equilibrium, comparative static analysis is presented and the methodology is applied to the break-up of the Bretton Woods exchange rate system. Then the dynamic interaction between the current account and the stock of net foreign assets is examined. Finally, the analysis uses a more general equilibrium approach by relying on simulations using MULTIMOD, a multicountry econometric model. The paper demonstrates the extent to which the equilibrium exchange rate calculations depend upon alternative assumptions regarding factors that affect internal and external balance. In addition, results obtained using the comparative static and dynamic macroeconomic approaches are compared.