Concepts of Equilibrium Exchange Rates. Rebecca Driver and Peter Westaway. Choosing how to measure equilibrium. What time frame? What definition of the exchange rate? Modelling option Choosing between models. What time frame are we interested in?. Short run Market equilibrium
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Rebecca Driver and Peter Westaway
Internal and external balance
Trend Current Account
(Y=Y* and YW=Y W*)
Current AccountFig 1: Stylised Model of the Underlying Balance model
What features do we want?
Will depend on the question
Westaway (2003) “Modelling the transition to EMU”, HM Treasury.