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Stochastic Optimal Control, International Finance, and Debt Crises$
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Jerome L. Stein

Print publication date: 2006

Print ISBN-13: 9780199280575

Published to Oxford Scholarship Online: May 2006

DOI: 10.1093/0199280576.001.0001

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The equilibrium real value of the euro: An evaluation of research 1

The equilibrium real value of the euro: An evaluation of research 1

Chapter:
(p.123) 5 The equilibrium real value of the euro: An evaluation of research1
Source:
Stochastic Optimal Control, International Finance, and Debt Crises
Author(s):

Jerome L. Stein (Contributor Webpage)

Publisher:
Oxford University Press
DOI:10.1093/0199280576.003.0005

Based on the NATREX model in chapter 4, this chapter answers the question: How can one explain the medium to longer run movements in the Synthetic-Euro, which is a basket of currencies of the member countries, from 1973-2000? Based upon the answer to this question, the expected value of the Euro/$US exchange rate in the future is analyzed, conditional upon policies followed in the two areas. The NATREX model, whose fundamentals are relative productivity and thrift, is consistent with the evidence. Both the PPP and Balassa-Samuelson hypotheses are rejected.

Keywords:   equilibrium value, Euro exchange rate, NATREX, BEER, PPP, Balassa-Samuelson

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