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Economic convergence and the fundamental equilibrium exchange rate in Poland

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Author Info
Rubaszek, Michał

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Abstract

The paper presents an extended version of the fundamental equilibrium exchange rate model (FFER). By introducing potential output into the specification of the foreign trade equations of the partial equilibrium FEER model we show that, under some plausible assumptions, the calculated level of the equilibrium exchange rate is consistent with the estimates of the behavioral equilibrium exchange (BEER). Moreover, we indicate that including the terms of trade as an explanatory variable in a reduced-form BEER equation for the real exchange rate might lead to the indeterminacy of the parameter estimates. The proposed model is applied to analyze fluctuations of the Polish zloty. We show that the real appreciation of the zloty is to a largely an equilibrium phenomenon.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 12910.

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Date of creation: Oct 2008
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Handle: RePEc:pra:mprapa:12910

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Related research
Keywords: Fundamental equilibrium exchange rate; current account; foreign trade;

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Find related papers by JEL classification:
C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions
F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies
F31 - International Economics - - International Finance - - - Foreign Exchange

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  3. Hamid Faruqee & Peter Isard, 1998. "Exchange Rate Assessment: Extension of the Macroeconomic Balance Approach," IMF Occasional Papers 167, International Monetary Fund.
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  5. Chinn, Menzie D. & Prasad, Eswar S., 2003. "Medium-term determinants of current accounts in industrial and developing countries: an empirical exploration," Journal of International Economics, Elsevier, vol. 59(1), pages 47-76, January. [Downloadable!] (restricted)
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  6. Paolo Zanghieri, 2004. "Current Accounts Dynamics in new EU members: Sustainability and Policy Issues," Working Papers 2004-07, CEPII research center. [Downloadable!]
  7. Aleksander Aristovnik, 2006. "Current Account Sustainability In Selected Transition Countries," William Davidson Institute Working Papers Series wp844, William Davidson Institute at the University of Michigan Stephen M. Ross Business School. [Downloadable!]
  8. Katerina Smídková & Aleš Bulir, 2005. "Exchange Rates in the New EU Accession Countries: What Have We Learned from the Forerunners?," IMF Working Papers 05/27, International Monetary Fund. [Downloadable!]
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  9. Bela Balassa, 1964. "The Purchasing-Power Parity Doctrine: A Reappraisal," Journal of Political Economy, University of Chicago Press, vol. 72, pages 584. [Downloadable!] (restricted)
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  11. Jan Bruha & Jiri Podpiera, 2007. "Inquiries on dynamics of transition economy convergence in a two-country model," Working Paper Series 791, European Central Bank. [Downloadable!]
  12. Gian Maria Milesi-Ferrett & Assaf Razin, 1996. "Sustainability of Persistent Current Account Deficits," NBER Working Papers 5467, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  14. Peter B. Clark & Ronald MacDonald, 1998. "Exchange Rates and Economic Fundamentals - A Methodological Comparison of BEERs and FEERs," IMF Working Papers 98/67, International Monetary Fund.
  15. Serena Ng & Pierre Perron, 2001. "LAG Length Selection and the Construction of Unit Root Tests with Good Size and Power," Econometrica, Econometric Society, vol. 69(6), pages 1519-1554, November. [Downloadable!] (restricted)
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  16. Virginie Coudert & Cecile Couharde, 2002. "Exchange Rate Regimes and Sustainable Parities for CEECs in the Run-up to EMU Membership," Working Papers 2002-15, CEPII research center. [Downloadable!]
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