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Equilibrium exchange rates in transition countries: Evidence from dynamic heterogeneous panel models

  • Kim, Byung-Yeon
  • Korhonen, Iikka

We use a dynamic heterogeneous panel model to estimate real equilibrium exchange rates for advanced transition countries. Our method is based on out-of-sample estimations from middle-income and high-income countries, and we use a pooled mean group estimator. We find that exchange rates have converged in recent years in five transition countries (Czech Republic, Hungary, Poland, Slovakia, and Slovenia) with real equilibrium exchange rates expressed in the US dollars. However, we also find that the currencies of the transition countries studied are substantially overvalued if real effective exchange rates are used.

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Article provided by Elsevier in its journal Economic Systems.

Volume (Year): 29 (2005)
Issue (Month): 2 (June)
Pages: 144-162

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Handle: RePEc:eee:ecosys:v:29:y:2005:i:2:p:144-162
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  2. Hinkle, Lawrence E. & Monteil, Peter J. (ed.), 1999. "Exchange Rate Misalignment: Concepts and Measurement for Developing Countries," OUP Catalogue, Oxford University Press, number 9780195211269, June.
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  18. International Monetary Fund, 1999. "Neglected Heterogeneity and Dynamics in Cross-Country Savings Regressions," IMF Working Papers 99/128, International Monetary Fund.
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  23. Susana Garcia Cervero & J. Humberto Lopez & Enrique Alberola Ila & Angel J. Ubide, 1999. "Global Equilibrium Exchange Rates; Euro, Dollar, “Ins,†“Outs,†and Other Major Currencies in a Panel Cointegration Framework," IMF Working Papers 99/175, International Monetary Fund.
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