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Behavioral and Permanent Zloty/Euro Equilibrium


  • Joanna Bęza-Bojanowska

    () (National Bank of Poland)


Poland is expected to enter the Exchange Rate Mechanism II (ERM II). The European Central Bank recommends that the ERM II central rate should reflect the best possible assessment of the equilibrium exchange rate. Since the equilibrium rate is changing in time, it is important to identify the pushing and pulling forces of the exchange rate. This knowledge will let the authorities to defend only the exchange rate that is in equilibrium and to assess outcomes of their actions. We use the VEC approach of Johansen to estimate the behavioral equilibrium exchange rate and to identify the pushing forces of the Polish zloty/euro rate. We apply the Gonzalo-Granger decomposition to calculate the permanent equilibrium exchange rate and to identify the pulling forces of the zloty exchange rate. We demonstrate that this approach may be useful for Polish authorities while entering the ERM II as well as within that mechanism.

Suggested Citation

  • Joanna Bęza-Bojanowska, 2009. "Behavioral and Permanent Zloty/Euro Equilibrium," Central European Journal of Economic Modelling and Econometrics, CEJEME, vol. 1(1), pages 35-55, March.
  • Handle: RePEc:psc:journl:v:1:y:2009:i:1:p:35-55

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    References listed on IDEAS

    1. Kenneth Rogoff, 1996. "The Purchasing Power Parity Puzzle," Journal of Economic Literature, American Economic Association, vol. 34(2), pages 647-668, June.
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    3. Henrik Hansen & Søren Johansen, 1999. "Some tests for parameter constancy in cointegrated VAR-models," Econometrics Journal, Royal Economic Society, vol. 2(2), pages 306-333.
    4. Joanna Beza-Bojanowska & Ronald MacDonald, 2009. "The Behavioural Zloty/Euro Equilibrium Exchange Rate," CESifo Working Paper Series 2568, CESifo Group Munich.
    5. Ronald MacDonald & Jun Nagayasu, 2000. "The Long-Run Relationship Between Real Exchange Rates and Real Interest Rate Differentials: A Panel Study," IMF Staff Papers, Palgrave Macmillan, vol. 47(1), pages 1-5.
    6. Greenslade, Jennifer V. & Hall, Stephen G. & Henry, S. G. Brian, 2002. "On the identification of cointegrated systems in small samples: a modelling strategy with an application to UK wages and prices," Journal of Economic Dynamics and Control, Elsevier, vol. 26(9-10), pages 1517-1537, August.
    7. Clark, Peter B. & MacDonald, Ronald, 2004. "Filtering the BEER: A permanent and transitory decomposition," Global Finance Journal, Elsevier, vol. 15(1), pages 29-56.
    8. MacDonald, Ronald, 2000. "Concepts to Calculate Equilibrium Exchange Rates: An Overview," Discussion Paper Series 1: Economic Studies 2000,03, Deutsche Bundesbank.
    9. Johansen, Soren, 1995. "Likelihood-Based Inference in Cointegrated Vector Autoregressive Models," OUP Catalogue, Oxford University Press, number 9780198774501.
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    11. Soren Johansen, 2002. "A Small Sample Correction for the Test of Cointegrating Rank in the Vector Autoregressive Model," Econometrica, Econometric Society, vol. 70(5), pages 1929-1961, September.
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    Cited by:

    1. Imre Vámos & Zsuzsanna Novák, 2015. "Four currencies outside the eurozone," International Journal of Business and Economic Sciences Applied Research (IJBESAR), Eastern Macedonia and Thrace Institute of Technology (EMATTECH), Kavala, Greece, vol. 8(3), pages 97-108, December.

    More about this item


    equilibrium exchange rate; cointegration analysis; Gonzalo- Granger decomposition; ERM II;

    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
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • F31 - International Economics - - International Finance - - - Foreign Exchange


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