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Equilibrium Exchange Rates in EU New Members: Applicable for Setting the ERM II Central Parity?

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Author Info
Horvath, Roman
Komarek, Lubos

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Abstract

In this paper we discuss the estimation and methodology of the real equilibrium exchange rate partial equilibrium models and analyze to what extent the resulting estimates are applicable for setting the central parity prior to ERM II entry in the new EU member states. Given the uncertainty surrounding the estimates, we argue that they are informative in the sign rather than the size of the misalignment of the exchange rate, but may still serve as useful consistency checks for the decision on the setting of the central parity. We argue that policy makers should consider the estimates in their decision-making only if the real exchange rate is substantially misaligned.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 1180.

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Date of creation: 20 Oct 2006
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Handle: RePEc:pra:mprapa:1180

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Related research
Keywords: Equilibrium Exchange Rate ERM II EU New Member States

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Find related papers by JEL classification:
E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation and Testing
F31 - International Economics - - International Finance - - - Foreign Exchange
C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Other Model Applications

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