The aim of this study is to assess the "optimal" frequency of a Behavioural Equilibrium Exchange Rate (BEER) model, which measures the misalignments of real effective exchange rates (REERs) relative to "equilibrium" levels that are consistent with a country's economic fundamentals. Estimates stemming from two similar models - one defined at a yearly frequency and one at a quarterly frequency - are compared; the predictive power of these estimates in explaining subsequent REER developments is also compared.
The post-1999 misalignment estimates stemming from the two models are reasonably similar. Moreover, both sets of estimates are found to be useful in explaining future REER developments, yet the explanatory power of the quarterly estimates is greater. Given the more timely updating of the quarterly data, the corresponding estimates are to be preferred for external imbalance monitoring purposes.
Published in 2021 in: Scottish Journal of Political Economy v. 68, 3, pp. 365-404.
