Sophie Béreau

Currency Misalignments and Growth: A New Look using Nonlinear Panel Data methods

The aim of this article is to investigate the link between currency misalignments and economic growth. Relying on panel cointegration techniques, we calculate Real Exchange Rate (RER) misalignments as deviations of actual RERs from their equilibrium values for a set of advanced and emerging economies. Estimating Panel Smooth Transition Regression (PSTR) models, we show that RER misalignments have a differentiated impact on economic growth depending on their sign: whereas overvaluations negatively affect economic growth, RER undervaluations significantly enhance it. This result indicates that undervaluations may drive the exchange rate to a level that encourages exports and promotes growth.

ROBUST ESTIMATIONS OF EQUILIBRIUM EXCHANGE RATES WITHIN THE G20: A PANEL BEER APPROACH

This paper is concerned with the robustness of equilibrium exchange rate estimations based on the BEER approach for a set of both industrial and emerging countries. The robustness is studied in four directions, successively. First, we investigate the impact of using alternative proxies for relative productivity. Second, we analyze the impact of estimating the equilibrium equation on one single panel covering G20 countries, or separately for G7 and non-G7 countries. Third, we measure the influence of the choice of the numeraire on the derivation of bilateral equilibrium rates. Finally, we study the temporal robustness of the estimations by dropping one or 2 years from the estimation period. Our main conclusion is that BEER estimations are quite robust to these successive tests, although at one point of time misalignments can differ by several percentage points depending on the methodology. The choice of the productivity proxy is the most sensible one, followed by the country sample. In contrast, the choice of the numeraire and the time sample have a relatively limited impact on estimated misalignments.

On the Complementarity of Equilibrium Exchange‐Rate Approaches

Based on a simple, stock–flow adjustment framework, we show that existing concepts of equilibrium exchange rates can be viewed as realizations of the same model at different time horizons. We then compare fundamental and behavioral estimations of equilibrium exchange rates based on the same, econometric modeling of the net foreign asset position in the long run, for a panel of 15 countries over the 1980–2005 period. These estimations suggest that, although more robust to alternative assumptions, the BEER approach may rely on excessive confidence on past behaviors in terms of portfolio choices. Symmetrically, FEERs may underestimate the plasticity of international capital markets because they focus on the adjustment of the trade balance.

Time is Money: An Heterogenous Agent Model for the FX

This paper deals with a Bayesian extension of a behavioral finance framework ‘a la’ De Grauwe and Grimaldi (The Exchange Rate in a Behavioural Finance Framework, Princeton University Press, Princeton, 2006) in which agents operating in the FX market differ in their forecasting time horizon for the exchange rate. In the short run, if we believe in the world described by Meese and Rogoff (J. Int. Econ., 14(1–2):3–24, 1983), this leads to a chartist rule, whereas in the long run, the PPP condition appears as a natural anchor. In between, i.e. in the medium run, we implement an APEER model using Bayesian tools, as an alternative to the FEER-BEER nexus. Our results show that the stabilizing impact of the intermediate rule depends on agents’ good perception of the fundamentals.