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Economic convergence and the fundamental equilibrium exchange rate in central and eastern Europe

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  • Rubaszek, Michal
  • Rawdanowicz, Lukasz

Abstract

The paper presents an extended version of the fundamental equilibrium exchange rate model (FEER), which introduces potential output into foreign trade equations. We show that with this specification and under some plausible assumptions the equilibrium exchange rate is consistent with the behavioral equilibrium exchange model (BEER). We use the extended FEER model to analyze fluctuations of the real exchange rate in four central and eastern European countries. The resulting FEER calculations show that the appreciation of the real exchange rates in these countries in the past nine years is largely an equilibrium phenomenon.

Suggested Citation

  • Rubaszek, Michal & Rawdanowicz, Lukasz, 2009. "Economic convergence and the fundamental equilibrium exchange rate in central and eastern Europe," International Review of Financial Analysis, Elsevier, vol. 18(5), pages 277-284, December.
  • Handle: RePEc:eee:finana:v:18:y:2009:i:5:p:277-284
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    References listed on IDEAS

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    Cited by:

    1. Dudek, Sławomir & Pachucki, Dawid & Zachłod-Jelec, Magdalena & Zając, Tomasz & Kolski, Paweł & Fudała-Poradzińska, Iwona & Danielski, Kamil, 2012. "eMPF Econometric Model of Public Finance," MF Working Papers 14, Ministry of Finance in Poland, revised 12 Jun 2012.
    2. Michal Adam & Witold Kozinski & Janusz Zielinski, 2013. "To what extent can central banks influence exchange rates with foreign exchange interventions? The case of Poland," BIS Papers chapters,in: Bank for International Settlements (ed.), Sovereign risk: a world without risk-free assets?, volume 73, pages 279-291 Bank for International Settlements.
    3. Lòpez-Villavicencio, Antonia & Mazier, Jacques & Saadaoui, Jamel, 2012. "Temporal dimension and equilibrium exchange rate: A FEER/BEER comparison," Emerging Markets Review, Elsevier, vol. 13(1), pages 58-77.
    4. Piotr Roszkowski & Kamila Sławińska & Andrzej Torój, 2014. "BEER tastes better in a panel of neighbours. On equilibrium exchange rates in CEE countries," Collegium of Economic Analysis Annals, Warsaw School of Economics, Collegium of Economic Analysis, issue 34, pages 209-226.
    5. Lucian Claudiu ANGHEL & Laurentiu-Mihai TREAPAT, 2015. "Main Economic Policies in order to Manage an Optimum Accession of Romania to the Euro Zone," Management Dynamics in the Knowledge Economy Journal, College of Management, National University of Political Studies and Public Administration, vol. 3(1), pages 151-169, March.
    6. Saadaoui, Jamel, 2012. "Déséquilibres globaux, taux de change d’équilibre et modélisation stock-flux cohérente
      [Global Imbalances, Equilibrium Exchange Rates and Stock-Flow Consistent Modelling]
      ," MPRA Paper 51332, University Library of Munich, Germany.
    7. Piotr Kębłowski, 2011. "The Behaviour of Exchange Rates in the Central European Countries and Credit Default Risk Premiums," Central European Journal of Economic Modelling and Econometrics, CEJEME, vol. 3(4), pages 221-236, December.

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