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On Currency Misalignments within the Euro Area
Author(s) -
Coudert Virginie,
Couharde Cécile,
Mig Valérie
Publication year - 2013
Publication title -
review of international economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.513
H-Index - 58
eISSN - 1467-9396
pISSN - 0965-7576
DOI - 10.1111/roie.12018
Subject(s) - economics , exchange rate , currency , monetary economics , inflation (cosmology) , international economics , common currency , single currency , position (finance) , optimum currency area , finance , physics , theoretical physics
Although nominal parities have been completely pegged within the euro area since the launch of the single currency, real effective exchange rates have continued to vary under the effect of inflation disparities, exhibiting a strong appreciation in the peripheral countries. In this paper, we assess real exchange rate misalignments for euro area countries by using a behavioral equilibrium exchange rate ( BEER ) approach on the period 1980–2010. The results show that the peripheral member countries have been suffering from increasingly overvalued exchange rates since the mid‐2000s, as their real appreciation has not stemmed from improving fundamentals in terms of productivity or external position. In addition, currency misalignments have increased on average for all euro area countries since the monetary union, while becoming more persistent. More worryingly, our findings highlight different patterns across members, as misalignments have been larger and more persistent in peripheral countries than in core countries.