My intention in presenting the above debate is to underscore the point that no single statistical measure of equilibrium exchange rate can be an acceptable reference point for all purposes. The estimation of REER is sensitive to the methodology. The challenge for statisticians would to design one or more constructs which provide the “best” possible measures of equilibrium exchange rates.
4 In the pre-crisis times, these expectation effects worked relatively smoothly. We had – and still have – a clear objective given to us by the Treaty, price stability. In 1998 we provided a quantitative definition of price stability, clarifying in 2003 that we aimed at inflation rates “below, but close to, 2%” over the medium-term.