A two-country NATREX model for the euro/dollar |
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Authors: | Marianna Belloc Daniela Federici |
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Affiliation: | 1. Department of Economics, Sapienza University of Rome, Via del Castro Laurenziano 9, 00161 Rome, Italy;2. Department of Economics, University of Cassino, Via S. Angelo, 03043 Cassino – FR, Italy |
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Abstract: | This paper develops a NATREX (NATural Real EXchange rate) model for two large economies, the Eurozone and the United States, which are fully specified and allowed to interact. The theoretical framework, grounded on dynamic disequilibrium modelling approach in continuous time, provides the basis for empirical estimation. The model is estimated in its structural form as a simultaneous nonlinear differential equations system for the 1975–2003 period. The estimated parameters are then used to derive the simulated Euro/USD NATREX series in- and out-of-sample that offers the benchmark against which the misalignements of the actual real exchange rate are measured. |
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Keywords: | F31 F36 F47 |
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