From PPP to Natrex - the Case of Czech Crown
AbstractThe exchange rate cannot significantly diverge from a (real) long-term equilibrium level consistent with the macroeconomic picture of an economy for a long period of time; otherwise, the economy suffers from macroeconomic imbalances such as below-potential growth and below natural employment, or on the other hand faces overheating of the economy with rising inflation. The paper focuses on different methods of how to measure the long-term equilibrium exchange rate. After a brief discussion of different approaches, the NATREX one was theoretically developed for the case of an open economy and empirically validated for the Czech economy. The NATREX concept represents a macroeconomic model based on stock-flow interaction. After the estimation of the NATREX model for the CZK, we have been able to answer such questions as: What are the pace and main determinants of the current long-term equilibrium appreciation? What is the current value of the equilibrium exchange rate and the misalignment of the current exchange rate? And, how fast is the exchange rate likely to revert to its equilibrium value?
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Bibliographic InfoArticle provided by University of Economics, Prague in its journal Politická ekonomie.
Volume (Year): 2009 (2009)
Issue (Month): 3 ()
Postal: Redakce Politické ekonomie, Vysoká škola ekonomická, nám. W. Churchilla 4, 130 67 Praha 3
Find related papers by JEL classification:
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models &bull Diffusion Processes
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
- F31 - International Economics - - International Finance - - - Foreign Exchange
- F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
- F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
- F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
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