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Assessing interdependence among countries' fundamentals and its implications for exchange rate misalignment estimates: An empirical exercise based on GVAR

Revista Brasileira de Economia

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Title Assessing interdependence among countries' fundamentals and its implications for exchange rate misalignment estimates: An empirical exercise based on GVAR
 
Creator Marçal, Emerson Fernandes; FGV/EESP
Zimmermann, Beatrice
de Prince, Diogo
Merlin, Giovanni; EESP-FGV
 
Subject C52, F31, F37
 
Description Abstract Exchange rates are important macroeconomic prices and changes in these rates affect economic activity, prices, interest rates, and trade flows. Methodologies have been developed in empirical exchange rate misalignment studies to evaluate whether a real effective exchange is overvalued or undervalued. There is a vast body of literature on the determinants of long-term real exchange rates and on empirical strategies to implement the equilibrium norms obtained from theoretical models. This study seeks to contribute to this literature by showing that the global vector autoregressions model (GVAR) proposed by Pesaran and co-authors can add relevant information to the literature on measuring exchange rate misalignment. Our empirical exercise suggests that the estimative exchange rate misalignment obtained from GVAR can be quite different to that using the traditional cointegrated time series techniques, which treat countries as detached entities. The differences between the two approaches are more pronounced for small and developing countries. Our results also suggest a strong interdependence among eurozone countries, as expected.
 
Publisher EGV EPGE
 
Contributor —
 
Date 2018-12-12
 
Type info:eu-repo/semantics/article
info:eu-repo/semantics/publishedVersion
Articles
Artigos
 
Format application/pdf
 
Identifier http://bibliotecadigital.fgv.br/ojs/index.php/rbe/article/view/62975
 
Source Revista Brasileira de Economia; v. 72, n. 4 (2018): OUT-DEZ; 429-450
Revista Brasileira de Economia; v. 72, n. 4 (2018): OUT-DEZ; 429-450
1806-9134
0034-7140
 
Language eng
 
Relation http://bibliotecadigital.fgv.br/ojs/index.php/rbe/article/view/62975/74544
 
Rights Direitos autorais 2018 Revista Brasileira de Economia