Advanced Search
MyIDEAS: Login to save this paper or follow this series

Calculating the Fundamental Equilibrium Exchange Rate of the Macedonian Denar

Contents:

Author Info

  • Jovanovic, Branimir

Abstract

The real exchange rate is a macroeconomic variable of a crucial importance, since it determines relative price of goods and services home and abroad, and influences economic agents’ decisions. The real exchange rate needs to be on the right level, as it can result in wrong signals and economic distortions if it is not. In order to be able to say whether a currency is misaligned or not, one needs some measure of the just exchange rate – the equilibrium exchange rate. Many different concepts of equilibrium exchange rates exist. The one which is defined as the real effective exchange rate that is consistent with the economy being in internal and external equilibrium in the medium term is the subject of this thesis, and is known under the name of Fundamental Equilibrium Exchange Rate concept. The first part of this study, thus, explains the concept of Fundamental Equilibrium Exchange Rate and surveys the literature on the uses to which it has been put and on the ways in which it has been calculated. The second part of the dissertation illustrates how the Fundamental Equilibrium Exchange Rate concept can be operationalised towards the end of assessing the right parity of the Macedonian denar. What we find is that the denar is neither overvalued nor overvalued in the period 1998-2005. That would imply that price competitiveness is not adversely affected, and that the exchange rate does not generate distortions in the economy. We also find that the fundamental equilibrium exchange rate tends to appreciate due to the increase in the net current transfers flows. In contrast, the real effective exchange rate tends to depreciate in the last three periods, and we are of the opinion that if these trends are maintained, in near future the denar might become undervalued.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://mpra.ub.uni-muenchen.de/43161/
File Function: original version
Download Restriction: no

Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 43161.

as in new window
Length:
Date of creation: 2007
Date of revision:
Handle: RePEc:pra:mprapa:43161

Contact details of provider:
Postal: Schackstr. 4, D-80539 Munich, Germany
Phone: +49-(0)89-2180-2219
Fax: +49-(0)89-2180-3900
Web page: http://mpra.ub.uni-muenchen.de
More information through EDIRC

Related research

Keywords: exchange rate; econometric modelling;

Find related papers by JEL classification:

References

References listed on IDEAS
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.:
as in new window
  1. Katerina Smidkova & Ray Barrell & Dawn Holland, 2002. "Estimates of Fundamental Real Exchange Rates for the Five EU Pre-Accession Countries," Working Papers 2002/03, Czech National Bank, Research Department.
  2. Alessandra Iacobucci & Alain Noullez, 2005. "A Frequency Selective Filter for Short-Length Time Series," Computational Economics, Society for Computational Economics, vol. 25(1), pages 75-102, February.
  3. Katerina Smidkova, 2003. "Estimating the FEER for the Czech Economy," Macroeconomics 0303014, EconWPA.
  4. Virginie Coudert & Cécile Couharde, 2002. "Exchange Rate Regimes and Sustainable Parities for CEECs in the Run-up to EMU Membership," Working Papers 2002-15, CEPII research center.
  5. Rebecca L Driver & Peter F Westaway, 2005. "Concepts of equilibrium exchange rates," Bank of England working papers 248, Bank of England.
  6. Perron, Pierre, 1989. "The Great Crash, the Oil Price Shock, and the Unit Root Hypothesis," Econometrica, Econometric Society, vol. 57(6), pages 1361-1401, November.
  7. Menzie D. Chinn & Hiro Ito, 2005. "Current Account Balances, Financial Development and Institutions: Assaying the World "Savings Glut"," NBER Working Papers 11761, National Bureau of Economic Research, Inc.
  8. Jakub Borowski & Anna Czogala & Adam Czyzewski, 2005. "Looking Forward Towards the ERM II Central Parity: The Case of Poland," Economie Internationale, CEPII research center, issue 102, pages 9-31.
  9. M. Hashem Pesaran & Yongcheol Shin & Richard J. Smith, 2001. "Bounds testing approaches to the analysis of level relationships," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(3), pages 289-326.
  10. Balazs Egert & Amina Lahrèche-Revil, 2003. "Estimating the Fundamental Equilibrium Exchange Rate of Central and Eastern European Countries; The EMU Enlargement Perspective," Working Papers 2003-05, CEPII research center.
  11. Bela Balassa, 1964. "The Purchasing-Power Parity Doctrine: A Reappraisal," Journal of Political Economy, University of Chicago Press, vol. 72, pages 584.
  12. Stein, Jerome L., 1990. "The real exchange rate," Journal of Banking & Finance, Elsevier, vol. 14(5), pages 1045-1078, November.
  13. Artus, Jacques R., 1978. "Methods of assessing the long-run equilibrium value of an exchange rate," Journal of International Economics, Elsevier, vol. 8(2), pages 277-299, May.
  14. Johansen, S., 1991. "Determination of Cointegration Rank in the Presence of a Linear Trend," Papers 76a, Helsinki - Department of Economics.
  15. Sónia Costa, 1998. "Determination of the equilibrium real exchange rate for the Portuguese economy using the FEER," Economic Bulletin and Financial Stability Report Articles, Banco de Portugal, Economics and Research Department.
  16. Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, vol. 59(6), pages 1551-80, November.
  17. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
  18. Houthakker, Hendrik S & Magee, Stephen P, 1969. "Income and Price Elasticities in World Trade," The Review of Economics and Statistics, MIT Press, vol. 51(2), pages 111-25, May.
Full references (including those not matched with items on IDEAS)

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:43161. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.