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A Semi-Structural Method to Estimate the NATREX for a Small Open Economy. The Case of Finland

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  • Isabell Koske

Abstract

This paper lays out a simple semi-structural method to estimate a small country version of the Natural Real Exchange Rate approach. Applying the model to the Finnish economy suggests that it works quite well in empirical applications. The predictions of the model regarding the impact of exogenous variables are generally confirmed by the data. Moreover, the implied exchange rate misalignments are consistent with previous research. The paper also highlights the benefits and drawbacks of the model both from a theoretical and an empirical perspective and compares it to other equilibrium real exchange rate approaches commonly employed in empirical research.

Suggested Citation

  • Isabell Koske, 2008. "A Semi-Structural Method to Estimate the NATREX for a Small Open Economy. The Case of Finland," Applied Economics Quarterly (formerly: Konjunkturpolitik), Duncker & Humblot, Berlin, vol. 54(2), pages 73-93.
  • Handle: RePEc:aeq:aeqaeq:v54_y2008_i2_q2_p73-93
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    Cited by:

    1. Frenkel Michael & Koske Isabell, 2012. "Are the Real Exchange Rates of the New EU Member Countries in Line with Fundamentals? – Implications of the NATREX Approach," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 232(2), pages 129-145, April.

    More about this item

    Keywords

    Exchange Rate Models; Natural Real Exchange Rate Approach; Finland;

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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