| Description |
1 online resource (24 pages) : illustrations |
| Series |
IMF working paper, 2227-8885 ; WP/97/109 |
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IMF working paper ; WP/97/109.
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| Summary |
There is a wealth of theoretical and empirical work on the determinants of the equilibrium real exchange rate. One important strand of the literature is associated with Williamson's seminal work (Williamson 1985), which has its roots in an approach developed at the IMF (Artus 1977).2 Williamson defines the fundamental equilibrium exchange rate, FEER, as the rate that is consistent with the simultaneous achievement of internal and external balance. Internal balance is defined as the level of economic activity that keeps the inflation rate constant. In Williamson's approach, the concept of external balance contains a normative element: the external position is balanced if the external current account (once adjusted for cyclical movements) can be regarded not only as sustainable (that is, meeting the country's intertemporal budget constraint), but also as "appropriate" (for example, based on desired levels of saving and investment). In order to determine the FEER, it is first necessary to formulate an econometric model for the trade sector that captures the relationships among output, current account, demand, and competitiveness. The FEER is then calculated as the exchange rate that maintains internal and external equilibrium. A critical summary of this approach by Black (1994) points out that serious questions remain concerning the normative choices on the model to be used, particularly the target for the current account |
| Bibliography |
Includes bibliographical references (pages 22-24) |
| Notes |
Master and use copy. Digital master created according to Benchmark for Faithful Digital Reproductions of Monographs and Serials, Version 1. Digital Library Federation, December 2002. http://purl.oclc.org/DLF/benchrepro0212 MiAaHDL |
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English |
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digitized 2010 HathiTrust Digital Library committed to preserve pda MiAaHDL |
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Print version record |
| Subject |
Foreign exchange rates -- Finland -- Econometric models
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Terms of trade -- Finland -- Econometric models
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Interest rates -- Finland -- Econometric models
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Industrial productivity -- Finland -- Econometric models
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Foreign exchange rates -- Econometric models
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Industrial productivity -- Econometric models
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Interest rates -- Econometric models
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Terms of trade -- Econometric models
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Finland
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| Form |
Electronic book
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| Author |
International Monetary Fund. European I Department.
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| ISBN |
128201482X |
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9781282014824 |
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1451898754 |
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9781451898750 |
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1462396348 |
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9781462396344 |
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1452726027 |
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9781452726021 |
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9786613796059 |
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6613796050 |
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9781451853179 |
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1451853173 |
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