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The Real Exchange Rate Misalignment in the Five Central European Countries

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Author Info
Frait, Jan (Czech National Bank, Prague)
Komarek, Lubos (Czech National Bank, Prague)
Meleck, Martin (University of New South Wales, Sydney)

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Abstract

The paper focuses on the developments of real exchange rates and their fundamental determinants in the five new EU Member States (Czech Republic, Hungary, Poland, Slovakia, and Slovenia). First, the approaches that can be used for estimation of equilibrium real exchange rates are briefly discussed. Then, we use well-established determinants of real exchange rates associated with the behavioral equilibrium exchange rate (BEER) approach to assess misalignments of the real exchange rates for the five new EU Member States. The estimates of the equilibrium exchange rates are obtained by means of both purely statistical approaches (HP filter, band-pass filter) and applying several multivariate estimation methods to our reduced-form BEER model. The results obtained indicate that the tendency towards appreciation of real exchange rates in the economies under consideration have been driven primarily by fundamental determinants.

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Paper provided by University of Warwick, Department of Economics in its series The Warwick Economics Research Paper Series (TWERPS) with number 739.

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Length: 33 pages
Date of creation: 2006
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Handle: RePEc:wrk:warwec:739

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Keywords: Exchange rate misalignments ; equilibrium exchange rates ; ERM II ; Central European Countries;

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  2. Kim, Byung-Yeon & Korhonen, Iikka, 2002. "Equilibrium Exchange Rates in Transition Countries: Evidence from Dynamic Heterogeneous Panel Models," BOFIT Discussion Papers 15/2002, Bank of Finland, Institute for Economies in Transition. [Downloadable!]
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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.
  4. Francisco Maeso-Fernandez & Chiara Osbat & Bernd Schnatz, 2004. "Towards the estimation of equilibrium exchange rates for CEE acceding countries: methodological issues and a panel cointegration perspective," Working Paper Series 353, European Central Bank. [Downloadable!]
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  6. 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. [Downloadable!]
  7. 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. [Downloadable!]
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    • Lawrence J. Christiano & Terry J. Fitzgerald, 1999. "The Band Pass Filter," NBER Working Papers 7257, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    • Lawrence J. Christiano & Terry J. Fitzgerald, 2003. "The Band Pass Filter," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 44(2), pages 435-465, 05. [Downloadable!] (restricted)
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  11. Gonzalo, J. & Granger, C., 1992. "Estimation of Common Long-Memory Components in Cointegrated Systems," Papers 4, Boston University - Department of Economics.
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  12. Marianne Baxter & Robert G. King, 1995. "Measuring Business Cycles Approximate Band-Pass Filters for Economic Time Series," NBER Working Papers 5022, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  13. Johansen, Søren & Juselius, Katarina, 1992. "Testing structural hypotheses in a multivariate cointegration analysis of the PPP and the UIP for UK," Journal of Econometrics, Elsevier, vol. 53(1-3), pages 211-244. [Downloadable!] (restricted)
  14. Carsten Detken & Alistair Dieppe & Jerome Henry & Frank Smets & Carmen Marin, 2002. "Model uncertainty and the equilibrium value of the real effective euro exchange rate," Working Paper Series 160, European Central Bank. [Downloadable!]
  15. Ronald MacDonald, 1997. "What Determines Real Exchange Rates? The Long and Short of It," IMF Working Papers 97/21, International Monetary Fund.
  16. 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. [Downloadable!]
  17. Virginie Coudert, 1999. "Comment definir un taux de change d'equilibre pour les pays emergents ?," Economie Internationale, CEPII research center, issue 1Q, pages 45-66. [Downloadable!]
  18. 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.
  19. 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. [Downloadable!]
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  20. Halpern, László & Wyplosz, Charles, 1995. "Equilibrium Real Exchange Rates in Transition," CEPR Discussion Papers 1145, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  21. 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. [Downloadable!] (restricted)
  22. Ofair Razin & Susan M. Collins, 1997. "Real Exchange Rate Misalignments and Growth," NBER Working Papers 6174, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  23. Burda, Michael C & Gerlach, Stefan, 1990. "Exchange Rate Dynamics and Currency Unification: The Ostmark-DM Rate," CEPR Discussion Papers 485, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  24. Hamid Faruqee, 1994. "Long-Run Determinants of the Real Exchange Rate - A Stock-Flow Perspective," IMF Working Papers 94/90, International Monetary Fund.
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  1. Olimov, Ulugbek & Sirajiddinov, Nishanbay, 2008. "The Effects of the Real Exchange Rate Volatility and Misalignments on Foreign Trade Flows in Uzbekistan," Economics Discussion Papers 2008-29, Kiel Institute for the World Economy. [Downloadable!]
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