## Wednesday, October 28, 2015

### Sterling-Euro exchange rates

Simon Wren-Lewis calculated the equilibrium exchange rate between the Euro and Pound back in 2003:
When I calculated an equilibrium sterling euro rate in 2003, my estimate was 1.365 E/£.
which corresponds to 0.73 £/€. Which is completely consistent with the information transfer model result:

We both expect a return to a slightly lower value (for €/£, a higher value for £/€). In the ITM it's part of the long run trend of the relative size of the two economies. Wren-Lewis's reasoning is a bit more complicated.