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Title: Fundamental Equilibrium Exchange Rates for the G7

Author(s): Ray Barrell and Simon Wren-Lewis

Publication Date: June 1989

Keyword(s): Capital Flows, Current Account and Exchange Rates

Programme Area(s): International Macroeconomics

Abstract: The Fundamental Equilibrium Exchange Rate (FEER) is the real exchange rate which produces a current account that is exactly matched by equilibrium medium-term capital flows. This paper sets out a small model to calculate FEERs for the G7 from 1971 to 1988. This model's parameters are either directly estimated or derived from the long-run properties of a larger world econometric model, GEM. Particular attention is paid to feedbacks from the FEER to the NAIRU, and interactions between world output, trade and commodity prices.

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Bibliographic Reference

Barrell, R and Wren-Lewis, S. 1989. 'Fundamental Equilibrium Exchange Rates for the G7'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=323