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Sustainable Exchange Rates When Trade Winds Are Plentiful

Author

Listed:
  • Jan Babecký

    (Czech National Bank, jan.babecky@cnb.cz)

  • AleÅ¡ Bulíř

    (International Monetary Fund, abulir@imf.org)

  • KateÅ™ina Å¡mídkova

    (Czech National Bank, katerina.smidkova@cnb.cz)

Abstract

Estimation and simulation of sustainable real exchange rates in a sample of EU member countries find vulnerabilities connected to the adoption of the euro if the rate vis-À-vis the euro were to be fixed with weak fundamentals and inappropriate policies. Sample countries have benefited from dramatic improvements in their external positions, in part driven by inflows of foreign direct investment. As a result, exchange rate misalignments have narrowed in most countries and, looking ahead, are expected to narrow further. These results are conditional, however, on optimistic projections with respect to world import demand and foreign direct investment inflows.

Suggested Citation

  • Jan Babecký & AleÅ¡ Bulíř & KateÅ™ina Å¡mídkova, 2008. "Sustainable Exchange Rates When Trade Winds Are Plentiful," National Institute Economic Review, National Institute of Economic and Social Research, vol. 204(1), pages 98-107, April.
  • Handle: RePEc:sae:niesru:v:204:y:2008:i:1:p:98-107
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    Cited by:

    1. Jaromir Baxa & Jiri Bohm & Roman Horvath & Lubos Komarek & Petr Kral & Magdalena Morgese Borys & Filip Rozsypal & Branislav Saxa & Borek Vasicek, 2011. "Monetary Policy Analysis in a Central Bank," Occasional Publications - Edited Volumes, Czech National Bank, edition 1, volume 9, number rb09/1 edited by Jan Babecky & Roman Horvath, January.

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