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Equilibrium Exchange Rates in the Transition: The Tradable Price-Based Real Appreciation and Estimation Uncertainty

In: Structural Change and Exchange Rate Dynamics

Author

Listed:
  • Balázs Égert
  • Kirsten Lommatzsch

Abstract

This paper sets out to estimate equilibrium real exchange rates for the Czech Republic, Hungary, Poland, Slovakia and Slovenia. A theoretical model is developed that provides an explanation for the appreciation of the real exchange rate based on tradable prices in the acceding countries. Our model can be considered as a competing but also completing framework to the traditional Balassa-Samuelson model. With this as a background, alternative cointegration methods are applied to time series (Engle-Granger, DOLS, ARDL and Johansen) and to three small-size panels (pooled and fixed effect OLS, DOLS, PMGE and MGE), which leaves us with around 5,000 estimated regressions. This enables us to examine the uncertainty surrounding estimates of equilibrium real exchange rates and the size of the underlying real misalignments.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Balázs Égert & Kirsten Lommatzsch, 2005. "Equilibrium Exchange Rates in the Transition: The Tradable Price-Based Real Appreciation and Estimation Uncertainty," Springer Books, in: Paul J.J. Welfens & Anna Wziątek-Kubiak (ed.), Structural Change and Exchange Rate Dynamics, pages 205-239, Springer.
    • Handle: RePEc:spr:sprchp:978-3-540-28526-7_16
    DOI: 10.1007/3-540-28526-1_16
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    References listed on IDEAS

    as
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    Cited by:

    1. Egert, Balazs & Lommatzsch, Kirsten & Lahreche-Revil, Amina, 2006. "Real exchange rates in small open OECD and transition economies: Comparing apples with oranges?," Journal of Banking & Finance, Elsevier, vol. 30(12), pages 3393-3406, December.
    2. Egert, Balazs, 2005. "Equilibrium exchange rates in South Eastern Europe, Russia, Ukraine and Turkey: Healthy or (Dutch) diseased?," Economic Systems, Elsevier, vol. 29(2), pages 205-241, June.
    3. Ian Babetskii & Balázs Égert, 2005. "Equilibrium Exchange Rate in the Czech Republic: How Good is the Czech BEER?," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 55(5-6), pages 232-252, May.
    4. Jan Bruha & Jiri Podpiera & Stanislav Polak, 2007. "The Convergence of a Transition Economy: The Case of the Czech Republic," Working Papers 2007/3, Czech National Bank.
    5. Fidrmuc, Jarko & Horváth, Roman, 2008. "Volatility of exchange rates in selected new EU members: Evidence from daily data," Economic Systems, Elsevier, vol. 32(1), pages 103-118, March.
    6. Comunale, Mariarosaria, 2015. "Current account and REER misalignments in Central Eastern EU countries: an update using the macroeconomic balance approach," BOFIT Discussion Papers 28/2015, Bank of Finland Institute for Emerging Economies (BOFIT).
    7. Nienke Oomes, 2005. "Maintaining Competitiveness Under Equilibrium Real Appreciation: The Case of Slovakia," IMF Working Papers 2005/065, International Monetary Fund.
    8. Bogoev, Jane & Bojceva Terzijan, Sultanija & Égert, Balázs & Petrovska, Magdalena, 2008. "Real Exchange Rate Dynamics in Macedonia: Old Wisdoms and New Insights," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 2, pages 1-19.
    9. Hasanov, Fakhri, 2009. "Analyzing price level in a booming economy: the case of Azerbaijan," MPRA Paper 29555, University Library of Munich, Germany.
    10. 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.
    11. Ondrej Schneider & Jan Zapal, 2006. "Fiscal Policy in New EU Member States: Go East, Prudent Man!," Post-Communist Economies, Taylor & Francis Journals, vol. 18(2), pages 139-166.
    12. Egert, Balazs, 2005. "Equilibrium exchange rates in South Eastern Europe, Russia, Ukraine and Turkey: Healthy or (Dutch) diseased?," Economic Systems, Elsevier, vol. 29(2), pages 205-241, June.
    13. García-Solanes, José & Sancho-Portero, F. Israel & Torrejón-Flores, Fernando, 2008. "Beyond the Balassa-Samuelson effect in some new member states of the European Union," Economic Systems, Elsevier, vol. 32(1), pages 17-32, March.
    14. Mariarosaria Comunale, 2019. "Long‐run determinants and misalignments of the real effective exchange rate in the EU," Scottish Journal of Political Economy, Scottish Economic Society, vol. 66(5), pages 649-672, November.
    15. Comunale, Mariarosaria, 2018. "Current account and real effective exchange rate misalignments in Central Eastern EU countries: An update using the macroeconomic balance approach," Economic Systems, Elsevier, vol. 42(3), pages 414-436.
    16. Brůha, Jan & Podpiera, Jiří, 2007. "Transition economy convergence in a two-country model: implications for monetary integration," Working Paper Series 740, European Central Bank.
    17. Joanna Bęza-Bojanowska, 2009. "Behavioral and Permanent Zloty/Euro Equilibrium," Central European Journal of Economic Modelling and Econometrics, Central European Journal of Economic Modelling and Econometrics, vol. 1(1), pages 35-55, March.
    18. Oomes, Nienke, 2005. "Maintaining competitiveness under equilibrium real appreciation: The case of Slovakia," Economic Systems, Elsevier, vol. 29(2), pages 187-204, June.
    19. Roman Horváth, 2005. "Real Equilibrium Exchange Rate Estimates: To What Extent Are They Applicable for Setting the Central Parity?," Working Papers IES 75, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised 2005.
    20. De Broeck, Mark & Slok, Torsten, 2006. "Interpreting real exchange rate movements in transition countries," Journal of International Economics, Elsevier, vol. 68(2), pages 368-383, March.
    21. Roman Hotvath, 2005. "Real Equilibrium Exchange Rate Estimates: To What Extent Applicable for Setting the Central Parity?," International Finance 0509006, University Library of Munich, Germany.
    22. Joanna Beza-Bojanowska, 2009. "The Behavioural Zloty/Euro Equilibrium Exchange Rate," NBP Working Papers 55, Narodowy Bank Polski.
    23. repec:zbw:bofitp:2005_003 is not listed on IDEAS
    24. Ivan Savin & Peter Winker, 2009. "Forecasting Russian Foreign Trade Comparative Advantages in the Context of a Potential WTO Accession," Central European Journal of Economic Modelling and Econometrics, Central European Journal of Economic Modelling and Econometrics, vol. 1(2), pages 111-138, November.

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    More about this item

    Keywords

    Exchange Rate; Real Exchange Rate; Trade Balance; Cointegration Test; Nominal Exchange Rate;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange

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