Discussion paper

DP323 Fundamental Equilibrium Exchange Rates for the G7

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.


Wren-Lewis, S and R Barrell (1989), ‘DP323 Fundamental Equilibrium Exchange Rates for the G7‘, CEPR Discussion Paper No. 323. CEPR Press, Paris & London. https://cepr.org/publications/dp323