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On Currency Misalignments within the Euro Area


  • We wish to thank Agnès Bénassy-Quéré, Gunther Capelle-Blancard, Benjamin Carton and Laurent Clerc for their valuable comments. The views given in this paper are those of the authors and not of the institutions they belong to.


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.