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Modelování rovnovážných odchylek měnových kurzů od parity kupní síly na datech pro 34 zemí v letech 2000-2020
[Modelling Equilibrium Deviations of Exchange Rates from Purchasing Power Parity]

Author

Listed:
  • Jiří Pour
  • Vít Illichmann

Abstract

We construct a simple model of exchange rates stemming from the methodology of behavioural equilibrium exchange rate (BEER) models on annual panel data for 34 countries with a floating exchange rate regime during the period 2000-2020. The basic building block of the model is the absolute version of purchasing power parity theory (the ratio of domestic and foreign price levels), further extended by other variables rooted in economic theory. A complementary interpretation of our approach could be a measurement of exchange rate deviations from purchasing power parity caused by variation in economic fundamentals. The results suggest that purchasing power parity is an appropriate reference point for exchange rate models. Furthermore, national currencies tend to be stronger against the euro with higher GDP per capita, interest rates, investment freedom, urbanization rate and terms of trade, and with lower inflation. The presented deviations of exchange rates from the model equilibrium are significantly lower than those implied by a naïve model based on purchasing power parity alone.

Suggested Citation

  • Jiří Pour & Vít Illichmann, 2022. "Modelování rovnovážných odchylek měnových kurzů od parity kupní síly na datech pro 34 zemí v letech 2000-2020 [Modelling Equilibrium Deviations of Exchange Rates from Purchasing Power Parity]," Politická ekonomie, Prague University of Economics and Business, vol. 2022(5), pages 531-551.
    • Handle: RePEc:prg:jnlpol:v:2022:y:2022:i:5:id:1371:p:531-551
    DOI: 10.18267/j.polek.1371
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    References listed on IDEAS

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    1. Philip R. Lane & Gian Maria Milesi-Ferretti, 2018. "The External Wealth of Nations Revisited: International Financial Integration in the Aftermath of the Global Financial Crisis," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 66(1), pages 189-222, March.
    2. Lane, Philip R. & Milesi-Ferretti, Gian Maria, 2002. "External wealth, the trade balance, and the real exchange rate," European Economic Review, Elsevier, vol. 46(6), pages 1049-1071, June.
    3. Barbara Rossi, 2013. "Exchange Rate Predictability," Journal of Economic Literature, American Economic Association, vol. 51(4), pages 1063-1119, December.
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    More about this item

    Keywords

    Behavioural equilibrium exchange rate (BEER); purchasing power parity theory; panel regression;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F37 - International Economics - - International Finance - - - International Finance Forecasting and Simulation: Models and Applications
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F47 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Forecasting and Simulation: Models and Applications

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