Abstract: I implement two major approaches to identifying the equilibrium exchange rate. First, the concept of purchasing power parity is tested and used to define the equilibrium real exchange rate for the Indonesian rupiah, Korean won, Malaysian ringgit, Philippine peso, Singapore dollar, Taiwanese dollar and the Thai baht. The calculated PPP rates are then used to evaluate whether these seven East Asian currencies were overvalued. The purchasing power parity calculations are performed on broad price indices, price indices of tradable goods, and price indices of export goods using the Johansen and Horvath-Watson cointegration test procedures. As of May 1997, the baht, ringgit and peso were overvalued according to this criterion. While the overvaluations are not large, they do appear to be persistent. Robustness checks for sensitivity to deflator, sample period, and numeraire currency are undertaken. Second, I calculate the implied equilibrium rates from a monetary model augmented by a proxy variable for productivity trends. The monetary models imply less substantial deviations from equilibrium. Furthermore, the results do not closely correspond to those obtained from the PPP calculations. Interestingly, both methods indicate that the Korean won was undervalued even before its recent discrete drop in value.

ABSTRACT: Estimating the degree of exchange rate misalignment remains one of the most challenging empirical problems in open-economy. A fundamental difficulty is that the equilibrium value of the real exchange rate is not observable. Standard theory tells us, however, that the equilibrium real exchange rate is a function of observable macroeconomic variables, and that the actual real exchange rate approaches the equilibrium rate over time. A recent strand of the empirical literature exploits these observations to develop a single-equation approach to estimating the equilibrium real exchange rate. Drawing on this earlier work, we outline an econometric methodology for estimating both the equilibrium real exchange rate and the degree of misalignment and illustrate the methodology using annual data from Côte d'Ivoire and Burkina Faso. We are grateful to Chris Adam, Neil Ericsson, Philip Jefferson, and Luis Serven for helpful advice, to Peter Montiel for very thorough comments on an earlier draft, and to Ingrid Ivins for assistance with data. Larry Hinkle provided invaluable comments and advice throughout and constructed the counterfactual simulations for Côte d'Ivoire and Burkina Faso. All errors are our own responsibility. Contents 1.

European Monetary Union will come into existence in 1999. This raises questions related to the monetary policy targets that will be adopted by the European Central Bank (ECB). For both likely candidates, targeting a money aggregate or an inflation target, the existence of a stable money demand function at a European level is important. In this paper estimates of such a European money demand for narrow and broad money for the actual 11 EMU countries based on quarterly aggregate data from 1964 to 1994 are presented. It is argued that statistically satisfactory and economically interpretable functions can be found. The robustness of the results is further evaluated using alternative country groups. Moreover, the estimated models appear to be stable over a period of 20 quarters. This raises the hopes that the ECB will face a stable money demand and be able - at least for a certain time - to use past aggregate data for policy purposes. Keywords: European Money Demand, Monetary Policy, Euro...

This paper explores the role of exchange rate regimes in explaining deviations from the classic theory of purchasing power parity. Examining a broad panel of countries, I find that developing countries with fixed exchange rate regimes have significantly higher national price levels than those with flexible regimes. For industrial countries, the association between regimes and price levels is qualitatively similar but weaker. I investigate several explanations for this pattern, and argue that it can be explained as the outcome of a class of open economy macroeconomic models pioneered by Obstfeld and Rogoff. A calibrated version of the benchmark model can account for roughly half of the observed differences.

Anderson, K., W. Martin, D. Sandri, and E. Valenzuela. 2006. Methodology for measuring distortions

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for their numerous and insightful remarks on earlier drafts of this Report. The authors thank professor Michael J. Artis for his excellent assistance with the English language version of the Report. The Report was submitted for publishing in March 2004. Design: Oliwka s.c. Printed by:

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The purpose of this paper is to describe and investigate the factors which determine the equilibrium real exchange rate (ERER) and affect its volatility in the Syrian economy over the period 1980-2008, using two estimation techniques, the Vector Error Correction Mode (VECM) and ARCH Model. According to the theoretical literature, there are many elements causing the (RER) volatility (relative productivity, government expenditure, terms of trade, trade openness and net foreign assets). The estimation excluded the last three non-significant variables and included gross capital formation and oil prices which are considered to be important factors in capturing the effect of these non-significant variables. The empirical results confirm the theoretical links between (RER) volatility and its determinants in the Syrian economy. Three main results are derived from the analysis: first, the actual Syrian (RER) has been volatile around its equilibrium level; in contrast, the speed of adjustment is relatively slow. Results from ARCH model estimation shows that the real shocks volatility will persist, so that shocks will die out rather slowly, and lasting misalignment seems to have occurred; second, the expected decline in Syrian oil production would require a significant depreciation of (RER), since its

economies exhibited severe traderelated distortions, including quantitative restrictions on imports and exports, very high tariffs, overvalued exchange rates, and administrative controls on foreign exchange allocation. Although growth remained rapid against a background of a favorable external environment up to the first oil shock in 1973, policies of import control and substitution induced inefficiencies as well as rigidities in economic structure. Often, they resulted in periodic balance of payments crises. Subsequently, the failure of many countries to adjust adequately to the external shocks of the 1970s and early 1980s underlined the importance of