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Equilibrium Exchange Rate in the Czech Republic: How Good is the Czech BEER?

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Author Info

  • Ian Babetskii

    ()
    (International Economic Analysis Division, Czech National Bank; CERGE-EI, Charles University in Prague; and CNRS-ROSES, University of Paris I-Sorbonne)

  • Balázs Égert

    ()
    (Oesterreichische Nationalbank; MODEM, University of Paris X-Nanterre; and William Davidson Institute)

Abstract

The paper investigates the equilibrium exchange rate of the Czech koruna using the reduced-form equation of the stock-flow approach advocated by, for example, Faruqee (1995) and Alberola et al. (1999). We investigate whether the observed real exchange rate of the Czech koruna is close to its equilibrium value over the period from 1993 to 2004. Our empirical approach is tantamount to the behavioral equilibrium exchange rate (BEER), popularized by MacDonald (1997) and Clark and MacDonald (1998), in that the Czech real exchange rate vis-a`-vis the euro is regressed on the dual productivity differential; and the net foreign assets position, based on which actual and total misalignment figures, are derived in a time-series context. In other words, we check the quality of the Czech BEER. We also study the impact of a possible initial undervaluation on the estimated equilibrium exchange rate. Employing monthly time series from 1993, and applying several alternative cointegration techniques, we identify a period of an overvaluation in 1997 and in 1999, an increasing overvaluation afterwards, an undervaluation in 2003, and a correction toward equilibrium in the second half of 2004.

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Bibliographic Info

Article provided by Charles University Prague, Faculty of Social Sciences in its journal Finance a uver - Czech Journal of Economics and Finance.

Volume (Year): 55 (2005)
Issue (Month): 5-6 (May)
Pages: 232-252

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Handle: RePEc:fau:fauart:v:55:y:2005:i:5-6:p:232-252

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Keywords: behavioral equilibrium exchange rate; Czech koruna; equilibrium exchange rate; productivity; real exchange rate; stock-flow approach; transition economies;

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References

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Citations

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Cited by:
  1. Ondrej Schneider & Jan Zapal, 2006. "Fiscal Policy in New EU Member States: Go East, Prudent Man!," Post-Communist Economies, Taylor & Francis Journals, vol. 18(2), pages 139-166.
  2. repec:ebl:ecbull:v:6:y:2007:i:29:p:1-8 is not listed on IDEAS
  3. Bruha, Jan & Podpiera, Jirí & Polák, Stanislav, 2010. "The convergence dynamics of a transition economy: The case of the Czech Republic," Economic Modelling, Elsevier, vol. 27(1), pages 116-124, January.
  4. Horvath, Roman, 2006. "Modelling Central Bank Intervention Activity under Inflation Targeting," MPRA Paper 914, University Library of Munich, Germany.
  5. Aurel Iancu, 2008. "Nominal Convergence," Review of Economic and Business Studies, Alexandru Ioan Cuza University, Faculty of Economics and Business Administration, issue 2, pages 53-73, November.
  6. Jan Bruha & Jiri Podpiera & Stanislav Polak, 2007. "The Convergence of a Transition Economy: The Case of the Czech Republic," Working Papers 2007/3, Czech National Bank, Research Department.
  7. Prasert Chaitip & Chukiat Chaiboonsri, 2009. "Thailand’s International Tourism Demand: The ARDL Approach to Cointegration," Annals of the University of Petrosani, Economics, University of Petrosani, Romania, vol. 9(3), pages 163-184.
  8. Zuzana Brixiova & Balázs Égert & Thouraya Hadj Amor Essid, 2014. "The Real Exchange Rate and External Competitiveness in Egypt, Morocco and Tunisia," William Davidson Institute Working Papers Series wp1068, William Davidson Institute at the University of Michigan.
  9. Alper, Ahmet Murat & Civcir, İrfan, 2012. "Can overvaluation prelude to crisis and harm growth in Turkey," Journal of Policy Modeling, Elsevier, vol. 34(1), pages 112-131.
  10. Roman Horváth, 2005. "Real Equilibrium Exchange Rate Estimates: To What Extent Are They Applicable for Setting the Central Parity?," Working Papers IES 75, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised 2005.
  11. Roman Hotvath, 2005. "Real Equilibrium Exchange Rate Estimates: To What Extent Applicable for Setting the Central Parity?," International Finance 0509006, EconWPA.
  12. Horvath, Roman & Komarek, Lubos, 2006. "Equilibrium Exchange Rates in EU New Members: Applicable for Setting the ERM II Central Parity?," MPRA Paper 1180, University Library of Munich, Germany.
  13. Zuzana Brixiova & Balázs Égert & Thouraya Hadj Amor Essid, 2013. "Working Paper 187 - The Real Exchange Rate and External Competitiveness in Egypt, Morocco and Tunisia," Working Paper Series 991, African Development Bank.

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