Questions have been raised by selected traders, economists and financial analysts on the guidelines and procedures for the assessments and measurements of the disequilibrium and equilibrium. There are several mathematical models have been introduced for the measurement of disequilibrium and equilibrium, however they are too complicated and CFA graduate from Chartered Financial Analyst Institute may not qualify to undertake the assessment and the measurement.
Equilibrium exchange rate (disequilibrium) and equilibrium interest rate (equilibrium) are different to effective exchange rate, nominal exchange rate, fundamental exchange rate and behavioural exchange rate that are generally used by the IMF, World Bank and other institutions in presenting the exchange rates.
The term of equilibrium exchange rate and equilibrium interest rate are illustrated in loanable fund theory introduced by Knuksell and equilibrium theory introduced by Cuikerman. However, those theories become more practicable after the introduction of the currency band theory introduced by Krugman, the later to be advanced by the theory of interest rate differential currency band introduced by Svennsons. Those are the foundation used by researchers and analysts to design equations that could be practiced by less educated analysts.
In practical, currency band theory is the indicator for the assessment and the measurement of the "actual" equilibrium exchange rate/disequilibrium and equilibrium interest rate/equilibrium. Therefore, unless currency band theory to be mastered and practiced, it is almost impossible to be able to measure the exchange rates at disequilibrium and at equilibrium. The actual exchange rates at disequilibrium and at equilibrium are assessable and measurable at the lower or at the upper currency bands. And, the most accurate currency band model is the interest rate differential currency band. The latest, they are advanced into time series interest rate differential based currency band.
The actual lower and upper currency band are validated by the performance of the currency pairs interior the band by using the theory of Brownian motion process. Therefore, the exchange rates at the lower or at the upper currency bands are different from time to time and dependance to the performance of the bands.
Accordingly, the exchange rates at lower currency band during the 1st quarter is different to the 2nd quarter, 3rd quarter and 4th quarter, and so on. Similarly, the exchange rates at upper currency band during the 1st quarter is different to the 2nd quarter, 3rd quarter and 4th quarter, and so on. Their difference is the result of different economic performance differential of currency pair from time to time. For example, one of more currencies' interest rates already increased or decreased, the GDP or CPI increased or decreased during the same or difference quarter to quarter. At such, the economic performance of a currency is accommodated by the performance of the currency band.
Thus, the currency band is dynamics, self-driven and self-adjustment and the actual exchange rates at disequilibrium and at equilibrium that measured at the lower or the upper currency bands are "dynamics" and "adjustable" from quarter to quarter or bi-quarter. The timing on the adjustment to be confirmed by the validation on the performance of the currency pairs interior the bands by using the Brownian motion process. It is "on-going performance mathematical computation" and may not presentable like advanced economic engineering and valuation or advanced corporate finance engineering and valuation. The theory however is accommodating the vested of interests of the global market participants (equal treatment and equal opportunity), a market-driven and motivated theory and practice.
