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Feers and the Path to EMU

Published online by Cambridge University Press:  26 March 2020

Ray Barrell  and
J.W. In't Veld
Ray Barrell
Affiliation:
NIESR
J.W. In't Veld
Affiliation:
NIESR
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Extract

The concept of the Fundamental Equilibrium Exchange Rate (FEER) was first used in Williamson (1983) to calculate the misalignments of the exchange rates for major currencies, and as a basis for his target zone proposal. In this note we use the same concept in a different context, that of the relations amongst the European economies which are members of the ERM, a system which is evolving towards monetary union. The first section reviews the concept of the FEER and its use in policy analysis. The second section relates this to the analysis of real exchange rates and external balance within a potential monetary union. The third section includes new estimates of FEERs using the most recent version of our world model, and considers the possible future evolution of FEERs in the context of EMU, including some tests of the sensitivity of these estimates to parametric change.

Type
Articles
Information
National Institute Economic Review , Volume 137 , August 1991 , pp. 51 - 58
Copyright
Copyright © 1991 National Institute of Economic and Social Research

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Footnotes

We would like to thank Andrew Britton, Andrew Gurney and Garry Young for their comments on an earlier version of this note, and John Williamson and Simon Wren-Lewis for many helpful discussions.

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