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The Behavioral Equilibrium Exchange Rate of the Czech Koruna

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  • Martin Melecký

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  • Luboš Komárek

Abstract

The behavioural equilibrium exchange rate (BEER) model of the Czech koruna is derived in this paper and estimated by three methods suitable for non-stationary time series. The potential determinants of the real equilibrium exchange rate considered are the productivity differential, the interest rate differential, the terms of trade, net foreign direct investment, net foreign assets, government consumption and the degree of openness. We find that the Czech koruna was on average undervalued over the period 1994 to 2004 by about 7 percent with respect to the estimated BEER. The significant determinants of the equilibrium exchange rate of the Czech koruna appear to be the productivity differential, the real interest rate differential, the terms of trade and net foreign direct investment.
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Suggested Citation

  • Martin Melecký & Luboš Komárek, 2007. "The Behavioral Equilibrium Exchange Rate of the Czech Koruna," Transition Studies Review, Springer;Central Eastern European University Network (CEEUN), vol. 14(1), pages 105-121, May.
    • Handle: RePEc:spr:trstrv:v:14:y:2007:i:1:p:105-121
    DOI: 10.1007/s11300-007-0136-1
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    References listed on IDEAS

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    8. Michal Rubaszek, 2004. "A Model of Balance of Payments Equilibrium Exchange Rate," Eastern European Economics, Taylor & Francis Journals, vol. 42(3), pages 5-22, May.
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    10. Marit Hinnosaar & Hannes Kaadu & Lenno Uuskula, 2005. "Estimating the equilibrium exchange rate of the Estonian kroon," Bank of Estonia Working Papers 2005-2, Bank of Estonia, revised 10 Oct 2005.
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    Cited by:

    1. Nikolaos Giannellis & Athanasios Papadopoulos, 2007. "Estimating the Equilibrium Effective Exchange Rate for Potential EMU Members," Open Economies Review, Springer, vol. 18(3), pages 307-326, July.
    2. Horvath, Roman & Komarek, Lubos, 2006. "Equilibrium Exchange Rates in EU New Members: Applicable for Setting the ERM II Central Parity?," MPRA Paper 1180, University Library of Munich, Germany.
    3. Alena Bicakova & Kamil Dybczak & Ales Krejdl & Jiri Slacalek & Michal Slavik, 2007. "CNB Economic Research Bulletin: Fiscal Policy and its Sustainability," Occasional Publications - Edited Volumes, Czech National Bank, Research Department, edition 2, volume 5, number rb05/2 edited by Ian Babetskii & Vladimir Bezdek.
    4. Oliver Hossfeld, 2010. "Equilibrium Real Effective Exchange Rates and Real Exchange Rate Misalignments: Time Series vs. Panel Estimates," FIW Working Paper series 065, FIW.
    5. Lee, Chin & Law, Chee-Hong, 2013. "The Effects of Trade Openness on Malaysian Exchange Rate," MPRA Paper 45185, University Library of Munich, Germany.
    6. Claudio A Paiva, 2006. "External Adjustment and Equilibrium Exchange Rate in Brazil," IMF Working Papers 06/221, International Monetary Fund.
    7. Ian Babetskii & Ales Bulir & Fabrizio Coricelli & Jan Filacek & Michal Franta & Roman Horvath & Branislav Saxa & Katerina Smidkova, 2008. "CNB Economic Research Bulletin: Ten Years of Inflation Targeting," Occasional Publications - Edited Volumes, Czech National Bank, Research Department, edition 1, volume 6, number rb06/1 edited by Ian Babetskii & Katerina Smidkova.

    More about this item

    Keywords

    equilibrium exchange rate modelling; time series analysis; exchange rate misalignment; Czech Republic; exchange rate mechanism II; E58; E61; F31; C52; C53;

    JEL classification:

    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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