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The Behavioral Equilibrium Exchange Rate of the Czech Koruna

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Author Info

  • Martin Melecky

    (School of Economics, University of New South Wales)

  • Lubos Komarek

    (Czech National Bank)

Abstract

The behavioural equilibrium exchange rate (BEER) model of the Czech koruna is derived in this paper and estimated by three methods suitable for non-stationary time series. The considered potential determinants of the real equilibrium exchange rate are the productivity differential, the interest rate differential, the terms of trade, net foreign direct investment, net foreign assets, government consumption and the degree of openness. We find that the Czech koruna was on average undervalued over the period 1994 to 2004 by about 7 percent with respect to the estimated BEER. The significant determinants of the equilibrium exchange rate of the Czech koruna appear to be the productivity differential, the real interest rate differential, the terms of trade and the net foreign direct investment.

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Bibliographic Info

Paper provided by EconWPA in its series International Finance with number 0504010.

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Length: 30 pages
Date of creation: 28 Apr 2005
Date of revision:
Handle: RePEc:wpa:wuwpif:0504010

Note: Type of Document - pdf; pages: 30
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Web page: http://128.118.178.162

Related research

Keywords: Equilibrium Exchange Rate Modelling; Time-Series Analysis; Exchange Rate Misalignments; Czech Republic; ERMII;

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References

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  1. Fischer, Christoph, 2002. "Real currency appreciation in accession countries: Balassa-Samuelson and investment demand," BOFIT Discussion Papers 8/2002, Bank of Finland, Institute for Economies in Transition.
  2. International Monetary Fund, 2003. "Competitiveness in the Baltics in the Run-Up to EU Accession," IMF Staff Country Reports 03/114, International Monetary Fund.
  3. Lommatzsch, Kirsten & Tober, Silke, 2004. "What is behind the real appreciation of the accession countries' currencies?: An investigation of the PPI-based real exchange rate," Economic Systems, Elsevier, vol. 28(4), pages 383-403, December.
  4. Byung-Yeon Kim & Iikka Korhonen, 2002. "Equilibrium Exchange Rates in Transition Countries: Evidence from Dynamic Heterogeneous Panel Models," Macroeconomics 0212014, EconWPA.
  5. Broeck, Mark De & Sløk, Torsten, 2001. "Interpreting real exchange rate movements in transition countries," BOFIT Discussion Papers 7/2001, Bank of Finland, Institute for Economies in Transition.
  6. Halpern, László & Wyplosz, Charles, 1995. "Equilibrium Real Exchange Rates in Transition," CEPR Discussion Papers 1145, C.E.P.R. Discussion Papers.
  7. Marit Hinnosaar & Hannes Kaadu & Lenno Uusküla, 2005. "Estimating the equilibrium exchange rate of the Estonian kroon," Bank of Estonia Working Papers 2005-2, Bank of Estonia, revised 10 Oct 2005.
  8. Frait , Jan & Komárek, Luboš, 2001. "REAL Exchange rate trends in transitional countries," The Warwick Economics Research Paper Series (TWERPS) 596, University of Warwick, Department of Economics.
  9. Jörg Rahn, 2003. "Bilateral Equilibrium Exchange Rates of the EU Accession Countries against the Euro," Quantitative Macroeconomics Working Papers 20306, Hamburg University, Department of Economics.
  10. Michal Rubaszek, 2004. "A Model of Balance of Payments Equilibrium Exchange Rate," Eastern European Economics, M.E. Sharpe, Inc., vol. 42(3), pages 5-22, May.
  11. Kornélia Krajnyák & Jeromin Zettelmeyer, 1998. "Competitiveness in Transition Economies: What Scope for Real Appreciation?," IMF Staff Papers, Palgrave Macmillan, vol. 45(2), pages 309-362, June.
  12. Darvas, Zsolt, 2001. "Exchange rate pass-through and real exchange rate in EU candidate countries," Discussion Paper Series 1: Economic Studies 2001,10, Deutsche Bundesbank, Research Centre.
  13. Rumen Dobrinsky, 2003. "Convergence in Per Capita Income Levels, Productivity Dynamics and Real Exchange Rates in the EU Acceding Countries," Empirica, Springer, vol. 30(3), pages 305-334, September.
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Citations

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Cited by:
  1. Alena Bicakova & Kamil Dybczak & Ales Krejdl & Jiri Slacalek & Michal Slavik, 2007. "CNB Economic Research Bulletin: Fiscal Policy and its Sustainability," Occasional Publications - Edited Volumes, Czech National Bank, Research Department, edition 2, volume 5, number rb05/2 edited by Ian Babetskii & Vladimir Bezdek, August.
  2. Horvath, Roman & Komarek, Lubos, 2006. "Equilibrium Exchange Rates in EU New Members: Applicable for Setting the ERM II Central Parity?," MPRA Paper 1180, University Library of Munich, Germany.
  3. Nikolaos Giannellis & Athanasios Papadopoulos, 2007. "Estimating the Equilibrium Effective Exchange Rate for Potential EMU Members," Open Economies Review, Springer, vol. 18(3), pages 307-326, July.
  4. Lee, Chin & Law, Chee-Hong, 2013. "The Effects of Trade Openness on Malaysian Exchange Rate," MPRA Paper 45185, University Library of Munich, Germany.
  5. Ian Babetskii & Ales Bulir & Fabrizio Coricelli & Jan Filacek & Michal Franta & Roman Horvath & Branislav Saxa & Katerina Smidkova, 2008. "CNB Economic Research Bulletin: Ten Years of Inflation Targeting," Occasional Publications - Edited Volumes, Czech National Bank, Research Department, edition 1, volume 6, number rb06/1 edited by Ian Babetskii & Katerina Smidkova, August.
  6. Claudio Paiva, 2006. "External Adjustment and Equilibrium Exchange Rate in Brazil," IMF Working Papers 06/221, International Monetary Fund.
  7. Oliver Hossfeld, 2010. "Equilibrium Real Effective Exchange Rates and Real Exchange Rate Misalignments: Time Series vs. Panel Estimates," FIW Working Paper series 065, FIW.

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