<p>I find tons of references <a href="http://econpapers.repec.org/" rel="nofollow noreferrer">here</a> (search box, to the left):</p>

<ul>
<li><a href="http://econpapers.repec.org/paper/fipfedkrw/95-14.htm" rel="nofollow noreferrer">this</a> paper recalls that if purchasing power parity holds, real exchange rates is constant (and thus prediction of nominal exchange rate depends on prediction of relative prices). They find evidence in favour of long-run PPP. There are tons of other papers testing PPP.</li>
<li>forecasting long run exchange rate with <a href="http://www.sciencedirect.com/science/article/pii/016517659400591O" rel="nofollow noreferrer">cointegration methods</a> (error-correction model).</li>
<li>a <a href="http://econpapers.repec.org/paper/fipfedgfe/1996-39.htm" rel="nofollow noreferrer">simulation study</a> to test if predicting long-run exchange rates is ever appropriate. </li>
<li><a href="http://econpapers.repec.org/article/keakeappr/ker-199412-10-1-12.htm" rel="nofollow noreferrer">another test</a> of predictability, using cointegration methods.</li>
<li>Recent examples of how to predict equilibrium exchange rate for a country with a <a href="http://econpapers.repec.org/paper/uzawpaper/18978.htm" rel="nofollow noreferrer">fixed exchange rate</a>, and one for a <a href="http://econpapers.repec.org/paper/bnoworpap/2010_5f19.htm" rel="nofollow noreferrer">flexible exchange rate</a>.</li>
</ul>

<p>The list is truly enormous. </p>

CC BY-SA 3.0
2017-06-30T10:24:19.387Z
2017-06-30T10:24:19.387Z
luchonacho
<p>(1) There is a large body of research that suggests that the statistical properties of exchange rates are best described by a random walk. In this case your best guess for the long run exchange rate is the exchange rate today.</p>

<p>(2) The theoretical foundation for many exchange rate forecasts is that in the long run some variation of PPP should hold. This means that the exchange rate should adjust to equalize prices in different countries. A forecast for the long run exchange rates could thus be based on the differences in prices today and forecasts of inflation rates.</p>

<p>(3) Be aware that your forecast will most likely be close to worthless which will be obvious to everyone if you include confidence intervals that attempt to correctly reflect the uncertainty in the numbers.</p>

CC BY-SA 3.0
2017-07-01T11:25:47.733Z
2017-07-01T11:25:47.733Z
Tobias
<p>I kept digging and found the following references. Hope it will help someone else.</p>

<ul>
<li><a href="https://www.imf.org/external/pubs/ft/wp/2007/wp07194.pdf" rel="nofollow noreferrer">IMF: Estimation of Equilibrium Exchange Rates in the WAEMU: A Robustness Approach </a></li>
<li><a href="https://www.imf.org/external/pubs/ft/wp/wp97109.pdf" rel="nofollow noreferrer">IMF: Estimating the equilibrium real exchange rate: an application to Finland</a></li>
</ul>

CC BY-SA 3.0
2017-06-29T21:01:55.743Z
2017-06-29T21:01:55.743Z
Phill
<p>I'am looking for a book or paper that explain (in a theoretical and empirical way) how to estimate the long-run exchange rate for a country. Could someone suggest me one?</p>

<macroeconomics><reference-request><exchange-rates><long-run>
How to estimate long term exchange rate?
Phill
# How to estimate long term exchange rate?

(Asked by: username_0 on 2017-06-27)

I'am looking for a book or paper that explain (in a theoretical and empirical way) how to estimate the long-run exchange rate for a country. Could someone suggest me one?

**Tags:** macroeconomics, reference-request, exchange-rates, long-run


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## 3 answers

### Answer by username_1 on 2017-06-30. Score: 0 | Accepted answer

I find tons of references [here](http://econpapers.repec.org/) (search box, to the left):

* [this](http://econpapers.repec.org/paper/fipfedkrw/95-14.htm) paper recalls that if purchasing power parity holds, real exchange rates is constant (and thus prediction of nominal exchange rate depends on prediction of relative prices). They find evidence in favour of long-run PPP. There are tons of other papers testing PPP.
* forecasting long run exchange rate with [cointegration methods](http://www.sciencedirect.com/science/article/pii/016517659400591O) (error-correction model).
* a [simulation study](http://econpapers.repec.org/paper/fipfedgfe/1996-39.htm) to test if predicting long-run exchange rates is ever appropriate.
* [another test](http://econpapers.repec.org/article/keakeappr/ker-199412-10-1-12.htm) of predictability, using cointegration methods.
* Recent examples of how to predict equilibrium exchange rate for a country with a [fixed exchange rate](http://econpapers.repec.org/paper/uzawpaper/18978.htm), and one for a [flexible exchange rate](http://econpapers.repec.org/paper/bnoworpap/2010_5f19.htm).

The list is truly enormous.


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### Answer by username_2 on 2017-07-01. Score: 0

(1) There is a large body of research that suggests that the statistical properties of exchange rates are best described by a random walk. In this case your best guess for the long run exchange rate is the exchange rate today.

(2) The theoretical foundation for many exchange rate forecasts is that in the long run some variation of PPP should hold. This means that the exchange rate should adjust to equalize prices in different countries. A forecast for the long run exchange rates could thus be based on the differences in prices today and forecasts of inflation rates.

(3) Be aware that your forecast will most likely be close to worthless which will be obvious to everyone if you include confidence intervals that attempt to correctly reflect the uncertainty in the numbers.


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### Answer by username_0 on 2017-06-29. Score: 0

I kept digging and found the following references. Hope it will help someone else.

* [IMF: Estimation of Equilibrium Exchange Rates in the WAEMU: A Robustness Approach](https://www.imf.org/external/pubs/ft/wp/2007/wp07194.pdf)
* [IMF: Estimating the equilibrium real exchange rate: an application to Finland](https://www.imf.org/external/pubs/ft/wp/wp97109.pdf)


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