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The Equilibrium Real Exchange Rate in a Commodity Exporting Country

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  • International Monetary Fund

Abstract

Questions about external competitiveness, exchange rate misalignment, and the appropriate exchange rate policy feature prominently in the Russian policy debate. This paper furthers the debate by estimating empirically Russia''s equilibrium real exchange rate (ERER)-that is, the rate consistent with the long-run economic fundamentals-and sheds light on the extent to which exchange rate policy should be changed. The paper confirms that the ERER reflects both productivity and the terms of trade. It suggests that Russia should target a significant medium-term current account deterioration and a real appreciation perhaps exceeding 10 percent. However, this latter number remains very sensitive to the assumed long-run oil prices.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 03/93.

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Length: 22
Date of creation: 01 May 2003
Date of revision:
Handle: RePEc:imf:imfwpa:03/93

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Related research

Keywords: Real effective exchange rates; exchange rate; oil prices; real exchange rate; transition economies; exchange rate policy; exchange rates; terms of trade; real effective exchange rate; effective exchange rate; exchange rate fluctuations; current account balance; exchange rate misalignment; international trade; foreign exchange; equilibrium exchange rate; current account deficit; trading partners; nominal exchange rate; nominal exchange rates; exchange rate movements; export volumes; real exchange rates; exchange rate variability; exchange rate misalignments; external position; domestic prices; trade shocks; real exchange rate movements; exchange rate crises; transition economy; import demand; transition countries; terms of trade shocks; export prices; real exchange rate fluctuations; domestic consumption; exchange reserves; real exchange rate behavior; commercial policies; domestic price; world price; exchange rate crisis; foreign exchange reserves; world prices; exchange rate behavior; foreign exchange market;

References

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  1. Lane, Philip R. & Milesi-Ferretti, Gian Maria, 2001. "The external wealth of nations: measures of foreign assets and liabilities for industrial and developing countries," Journal of International Economics, Elsevier, vol. 55(2), pages 263-294, December.
  2. Carmen M. Reinhart, 1995. "Devaluation, Relative Prices, and International Trade: Evidence from Developing Countries," IMF Staff Papers, Palgrave Macmillan, vol. 42(2), pages 290-312, June.
  3. John Williamson, 1994. "Estimating Equilibrium Exchange Rates," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 17.
  4. Ronald MacDonald, 1995. "Long-Run Exchange Rate Modeling," IMF Working Papers 95/14, International Monetary Fund.
  5. Clarida, Richard & Galí, Jordi, 1994. "Sources of Real Exchange Rate Fluctuations: How Important are Nominal Shocks?," CEPR Discussion Papers 951, C.E.P.R. Discussion Papers.
  6. Phillips, Peter C B & Loretan, Mico, 1991. "Estimating Long-run Economic Equilibria," Review of Economic Studies, Wiley Blackwell, vol. 58(3), pages 407-36, May.
  7. De Broeck, Mark & Slok, Torsten, 2006. "Interpreting real exchange rate movements in transition countries," Journal of International Economics, Elsevier, vol. 68(2), pages 368-383, March.
  8. Hamid Faruqee, 1994. "Long-Run Determinants of the Real Exchange Rate," IMF Working Papers 94/90, International Monetary Fund.
  9. Sebastian Edwards, 1985. "Commodity Export Prices and the Real Exchange Rate in Developing Countries: Coffee in Colombia," NBER Working Papers 1570, National Bureau of Economic Research, Inc.
  10. Tarhan Feyzioglu, 1997. "Estimating the Equilibrium Real Exchange Rate," IMF Working Papers 97/109, International Monetary Fund.
  11. Lane, Philip R. & Gian Maria Milesi-Ferretti, 2002. "External Wealth, the Trade Balance, and the Real Exchange Rate," Royal Economic Society Annual Conference 2002 119, Royal Economic Society.
  12. Hinkle, Lawrence E. & Monteil, Peter J. (ed.), 1999. "Exchange Rate Misalignment: Concepts and Measurement for Developing Countries," OUP Catalogue, Oxford University Press, number 9780195211269, September.
  13. Ronald Macdonald, 1995. "Long-Run Exchange Rate Modeling: A Survey of the Recent Evidence," IMF Staff Papers, Palgrave Macmillan, vol. 42(3), pages 437-489, September.
  14. Steven A. Symansky & Peter B. Clark & Leonardo Bartolini & Tamim Bayoumi, 1994. "Exchange Rates and Economic Fundamentals," IMF Occasional Papers 115, International Monetary Fund.
  15. Peter Isard & Hamid Faruqee, 1998. "Exchange Rate Assessment," IMF Occasional Papers 167, International Monetary Fund.
  16. G. Russell Kincaid & Martin Fetherston & Peter Isard & Hamid Faruqee, 2001. "Methodology for Current Account and Exchange Rate Assessments," IMF Occasional Papers 209, International Monetary Fund.
  17. International Monetary Fund, 2000. "The Great Contractions in Russia, the Baltics and the Other Countries of the Former Soviet Union," IMF Working Papers 00/32, International Monetary Fund.
  18. Khan, Mohsin S. & Ostry, Jonathan D., 1992. "Response of the equilibrium real exchange rate to real disturbances in developing countries," World Development, Elsevier, vol. 20(9), pages 1325-1334, September.
  19. Sebastian Edwards, 1986. "Real Exchange Rate Variability: An Empirical Analysis of the Developing Countries Case," NBER Working Papers 1930, National Bureau of Economic Research, Inc.
  20. Joannes Mongardini, 1998. "Estimating Egypt's Equilibrium Real Exchange Rate," IMF Working Papers 98/5, International Monetary Fund.
  21. Carmen Reinhart, 1994. "Devaluation, Relative Prices, and International Trade," IMF Working Papers 94/140, International Monetary Fund.
  22. Hamid Faruqee, 1995. "Long-Run Determinants of the Real Exchange Rate: A Stock-Flow Perspective," IMF Staff Papers, Palgrave Macmillan, vol. 42(1), pages 80-107, March.
  23. International Monetary Fund, 2002. "Russian Federation," IMF Staff Country Reports 02/75, International Monetary Fund.
  24. Claudio Paiva, 2001. "Competitiveness and the Equilibrium Exchange Rate in Costa Rica," IMF Working Papers 01/23, International Monetary Fund.
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