Real Exchange Rate Misalignments in the Euro Area

Fidora, Michael; Giordano, Claire; Schmitz, Martin

doi:10.1007/s11079-020-09596-1

Cited by 85 publications

(36 citation statements)

References 108 publications

(128 reference statements)

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“…These estimates therefore corroborate the cross-sectional findings in Fidora et al (2020), according to which median misalignments in the 1999-2016 period were significantly lower in the founding members of the euro area than in non-euro area advanced and emerging economies. They are also consistent with the recent findings in…”

Section: Misalignments Of the Four Main Euro-area Economiessupporting

confidence: 85%

“…However, BEER models have mainly included relative CPIs or PPPs. To our knowledge, Fidora et al (2020) and Giordano (2018Giordano ( , 2020a, as well as this article, are the only attempts to consider such a wide range of price and cost indicators. Moreover, the importance of double-checking results based on price indices as opposed to levels has already been stressed in Section 2.…”

Section: The Dependent Variablementioning

confidence: 99%

“…Adler and Grisse (2017) is centred on the selection of fundamentals, the country sample and the estimation methodology. Fidora et al (2020) adopts various price and cost indicators to construct the REERs, as well as employing alternative Balassa-Samuelson proxies, carefully selecting the set of relevant explanatory variables and using different estimation techniques.…”

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confidence: 99%

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How frequent a BEER? Assessing the impact of data frequency on real exchange rate misalignment estimation

Giordano

2021

Scottish J Political Eco

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This paper explores the robustness of Behavioural Equilibrium Exchange Rate (BEER) models -employed to estimate real effective exchange rate (REER) deviations from "equilibrium" values consistent with macroeconomic fundamentals -to the frequency (annual vs. quarterly) of the underlying data. Indeed, data frequency influences both the length of the sample period (which is typically shorter in a quarterly model) and the set of relevant fundamentals to be included in the specification, and can affect the plausibility of some of the BEER modelling assumptions, which are especially restrictive at the quarterly frequency. The paper compares REER misalignment estimates stemming from a carefully specified annual model, estimated since 1980 for 55 countries, and a comparable quarterly model, estimated since 1999, which is a variant of that currently in use at the Bank of Italy (Giordano, 2018). In the overlapping period the annualised quarterly-model misalignments are quite similar to those based on the annual model. Moreover, the in-sample power of quarterly REER misalignments in explaining subsequent, actual REER developments is found to be higher than that of the annual estimates, signalling their greater usefulness in assessing a country's external economic outlook. This paper therefore confirms the robustness of the quarterly BEER model currently employed at the Bank of Italy; moreover, it suggests that the "optimal" frequency of a BEER model depends on the use (research vs. monitoring and policy-making) one makes of the resulting measures.

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Section: Misalignments Of the Four Main Euro-area Economiessupporting

confidence: 85%

Section: The Dependent Variablementioning

confidence: 99%

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confidence: 99%

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How frequent a BEER? Assessing the impact of data frequency on real exchange rate misalignment estimation

Giordano

2021

Scottish J Political Eco

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“…Accordingly, Bagnai and Mongeau-Ospina (2017) sustain that monetary unification-by fixing the nominal exchange rates-contributed to widening divergences in productivity developments in the Euro area. As far as we know, few other studies have considered exchange rates as a determinant of long run TFP in the EU, where, on the other hand, real exchange rate misalignments exist and are even more persistent than in the rest of the world (Fidora et al 2020).…”

Section: Introductionmentioning

confidence: 99%

What drives TFP long-run dynamics in five large European economies?

2021

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The aim of this paper is to study the long-run cointegrating relationship of TFP in a panel of five large European economies, namely France, Germany, Italy, Spain, and UK. We test whether TFP is determined by the so-called “capital misallocation effects, scale effects, and labor market effects”. By considering aggregate data, over the period 1983–2017, we employ dynamic panel cointegration techniques to identify the long-run component of TFP. We get two main results. First, the interest rate, the real compensation and the real exchange rate have a positive impact on TFP. Then, the incidence of temporary employment (a proxy of labor market flexibility) has a negative effect on TFP. Moreover, for robustness, we run a panel VECM to check for causalities among the variables. Notably, this further excercise confirms the existence of a strong and positive long-run relationship between TFP and prices. We conclude that coordinated policies on the issue of interest rate, exchange rate, labour cost and regulation, may allow to reassemble the productivity slowdown puzzle and strengthen the European economic structure.

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“…The relevant studies differ, however, in the panel estimation technique applied. To give some examples, Couharde et al (2017) and Fidora et al (2017) use fixed effects estimators, Fischer and Hossfeld (2014) present fixed effects and pooled OLS estimates, Cheung et al (2007) and Berka et al (2018) compute fixed effects, between effects, random effects and pooled OLS estimates and, in their external balance assessment (EBA) framework, the IMF provides both, a fixed effects-based regression (cf. Phillips et al, 2013) and a 2SLS regression (cf.…”

Section: Introductionmentioning

confidence: 99%