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Ambivalent attitudes of experts and different empirical results, often unsuccessful, as a result of the application of traditional concepts forming the exchange rate contributed to a new wave of research on the equilibrium real exchange rate, which basically see exchange rate fundamental variables as factors that determine its equilibrium or sustainable level. While the choice of fundamental variables, although in general defined, depends on the country which is the object of study, as well as the authors themselves and methodology. This paper aims to show one of many methods used to estimate the equilibrium real exchange rate, as well as the real exchange rate deviation from its estimated level - the concept of fundamental equilibrium exchange rate - FEER.

In this paper we assess the equilibrium value of the Mauritian rupee in 2006-7 and over the medium run using two structural models. First, we derive a current account-based measure of the exchange rate equilibrium using the macroeconomic balance approach. Second, we estimate a reduced-form fundamental equilibrium exchange rate measure. Our results, which are robust to an alternative non-econometric approach, suggest that the Mauritian rupee was aligned with its equilibrium value in 2006-7 and little adjustment appeared necessary over the medium run.

Ambivalent attitudes of experts and different empirical results, often unsuccessful, as a result of the application of traditional concepts forming the exchange rate contributed to a new wave of research on the equilibrium real exchange rate, which basically see exchange rate fundamental variables as factors that determine its equilibrium or sustainable level. While the choice of fundamental variables, although in general defined, depends on the country which is the object of study, as well as the authors themselves and methodology. This paper aims to show one of many methods used to estimate the equilibrium real exchange rate, as well as the real exchange rate deviation from its estimated level - the concept of fundamental equilibrium exchange rate - FEER.

The significant real exchange rate appreciation in Armenia and Georgia since 2003, coupled with persistent current account deficits, raises the question of whether real exchange rates have become overvalued. This paper seeks to identify possible exchange rate misalignment by applying the behavioral equilibrium exchange rate approach, complemented by an analysis of the traditional competitiveness indicators. The results indicate an undervaluation of the Armenian dram and no significant misalignment of the Georgian lari in 2006.

Several pioneering studies have established that the period of exchange rate misalignment is characterized by currency appreciation and depreciation. These studies conclusively assert that if currency overvaluation occurs beyond a minimum threshold it can render an economic system vulnerable to currency crisis, in view of this, is the Nigerian economy in a state of currency crisis? What impact does the period of currency crisis have on the Nigerian economy and what factors are responsible in aggravating the position of the crisis within the context of the Nigerian economy? To ensure this, we applied the permanent equilibrium exchange rate (PEER) and the behavioral equilibrium exchange rate (BEER) in estimating the misalignment in Nigeria. While the Logit and Probit models were used to determine the impacts of the crisis on the Nigerian economy. The study used quarterly data from 1980Q1 to 2011Q4. The findings of the study established the existences of high degree of currency overvaluation reaching an unprecedented level above 46% in the last quarter of 2011. A similar worsening trend was observed in the case of undervaluation. The results of the Logit and Probit models, on the other hand, reveal that the Nigerian economy is in a state of currency crisis. The study discovered how external debt, money growth rate and domestic credit growth rate to be the more likely compounding factors to the crisis in Nigeria. Although the study discovered that the momentum of the crisis has no effect on the county's GDP growth rate. Nevertheless, these problems were discovered to be the aggravating agents of the crisis in Nigeria. We recommend the establishment of frameworks that are consistent with boosting productivity and the application of synergistic monetary policy models that will not only ensure a sustainable and improved value of the local currency, but that which could create its foreign demand, among other things.

Empirical evidence shows that most exchange rate volatility at short to medium horizons is related to order flow and not to macroeconomic variables. We introduce symmetric information dispersion about future macroeconomic fundamentals in a dynamic rational expectations model in order to explain these stylized facts. Consistent with the evidence, the model implies that (a) observed fundamentals account for little of exchange rate volatility in the short to medium run, (b) over long horizons, the exchange rate is closely related to observed fundamentals, (c) exchange rate changes are a weak predictor of future fundamentals, and (d) the exchange rate is closely related to order flow.

Originally propounded by the sixteenth-century scholars of the University of Salamanca, the concept of purchasing power parity (PPP) was revived in the interwar period in the context of the debate concerning the appropriate level at which to re-establish international exchange rate parities. Broadly accepted as a long-run equilibrium condition in the post-war period, it was first advocated as a short-run equilibrium by many international economists in the first few years following the breakdown of the Bretton Woods system in the early 1970s and then increasingly came under attack on both theoretical and empirical grounds from the late 1970s to the mid 1990s. Accordingly, over the last three decades, a large literature has built up that examines how much the data deviated from theory, and the fruits of this research have provided a deeper understanding of how well PPP applies in both the short run and the long run. Since the mid 1990s, larger datasets and nonlinear econometric methods, in particular, have improved estimation. As deviations narrowed between real exchange rates and PPP, so did the gap narrow between theory and data, and some degree of confidence in long-run PPP began to emerge again. In this respect, the idea of long-run PPP now enjoys perhaps its strongest support in more than thirty years, a distinct reversion in economic thought. Our willingness to pay a certain price for foreign money must ultimately and essentially be due to the fact that this money possesses a purchasing power as against commodities and services in that country. On the other hand, when we offer so and so much of our own money, we are actually offering a purchasing power as against commodities and services in our own country. Our valuation of a foreign currency in terms of our own, therefore, mainly depends on the relative purchasing power of the two currencies in their respective countries.

Using data since 1820 for the US, the UK and France, we test for the presence of real effects on the equilibrium real exchange rate (the Harrod-Balassa-Samuelson, HBS effect) in an explicitly nonlinear framework and allowing for shifts in real exchange rate volatility across nominal regimes. A statistically significant HBS effect for sterling-dollar captures its long-run trend and explains a proportion of variation in changes in the real rate that is proportional to the time horizon of the change. There is significant evidence of nonlinear reversion towards long-run equilibrium and downwards shifts in volatility during fixed nominal exchange rate regimes.

We assess the competitiveness of Mauritius in recent years using two approaches. First, we estimate the difference between the equilibrium and the actual real exchange rate using four methods: the macroeconomic balance approach, the single-equation fundamentals approach, the capital-enhanced approach, and the external sustainability approach. The methods consistently suggest that at the end of 2007 the exchange rate was aligned with its equilibrium value. Second, we undertake a comparative analysis of structural competitiveness indicators and find that Mauritius often fares better on business climate than other small island economies and high-growth Asian economies. Nevertheless, there are areas for improvement.

This paper uses three methods to assess movements of real exchange rates in the ECCU over time. First, the purchasing power parity hypothesis is tested and then used to provide a benchmark for equilibrium real exchange rates in the region. Second, a fundamentals-based equilibrium real exchange rate approach is used to explore sources of real exchange rate fluctuations in ECCU countries. And third, a macroeconomic balance approach is used to estimate equilibrium current account or current account \"norms\". The main finding of these analyses is that there is little evidence of overvaluation of the EC dollar. Furthermore, this paper contributes to the literature by analyzing the distinctive impact of tourism in determining real exchange rates through the wealth effect induced by tourism-driven increases in terms of trade and productivity.