Assessing the Equilibrium Exchange Rate of the Cyprus Pound at the time of Euro Adoption
AbstractOne of the landmark events in the recent history of Cyprus was the adoption of the euro on 1 January 2008. A crucial element of the preparatory discussions between the Cypriot authorities and the competent European bodies was the search for an agreement on the conversion rate of the Cyprus pound vis-a-vis the euro, which was decided by the Economic and Financial Affairs Council (ECOFIN) on 10 July 2007. This paper describes part of the work undertaken at the Central Bank of Cyprus as background material for these discussions. Using a qualitative and quantitative approach, the paper suggests that the exchange parity rate of the Cyprus pound vis-a-vis the euro which existed for a number of years prior to euro adoption was broadly in line with economic fundamentals. Evidence examined include the stability of the Cyprus pound vis-a-vis the euro within a credible exchange rate policy framework, robust growth, low levels of unemployment, high Foreign Direct Investment (FDI) coverage of the current account deficit as well as low and stable inflation. This conclusion is also supported by a model-based approach using the Fundamental Equilibrium Exchange Rate (FEER) framework.
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Bibliographic InfoPaper provided by Central Bank of Cyprus in its series Working Papers with number 2010-6.
Length: 40 pages
Date of creation: Sep 2010
Date of revision:
Contact details of provider:
Web page: http://www.centralbank.gov.cy/nqcontent.cfm?a_id=1
More information through EDIRC
Equilibrium exchange rate; euro adoption; FEER;
Find related papers by JEL classification:
- F31 - International Economics - - International Finance - - - Foreign Exchange
- F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-10-23 (All new papers)
- NEP-CBA-2010-10-23 (Central Banking)
- NEP-MON-2010-10-23 (Monetary Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Maeso-Fernandez, Francisco & Osbat, Chiara & Schnatz, Bernd, 2004. "Towards the estimation of equilibrium exchange rates for CEE acceding countries: methodological issues and a panel cointegration perspective," Working Paper Series 0353, European Central Bank.
- Simon Wren-Lewis & Rebecca Driver, 1998.
"Real Exchange Rates for the Year 2000,"
Peterson Institute Press: All Books,
Peterson Institute for International Economics, number pa54.
- Simon Wren-Lewis & Rebecca Driver, 1998. "Real Exchange Rates for the Year 2000," Peterson Institute Press: Policy Analyses in International Economics, Peterson Institute for International Economics, number pa54.
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