Estimating Jamaica’s Fundamental Equilibrium Exchange Rate

The study sets out to enhance the Bank of Jamaica’s portfolio of equilibrium exchange rate measures through the estimation of the Fundamental Equilibrium Exchange Rate for Jamaica. The FEER is a medium-term equilibrium exchange rate measure where equilibrium is defined as the level of the real effective exchange rate (REER) that is compatible with a country’s internal and external balance. The FEER was estimated using the Autoregressive Distributed Lag (ARDL) approach. The study found that there were periods where Jamaica’s REER was undervalued and periods where the REER was overvalued. Importantly, the study revealed that the depreciation observed since December 2011 has brought the REER in line with the equilibrium measure as at September 2013