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An Estimate of the Real Exchange Rate for Costa Rica, BEER Approach. 2007-2022

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Listed:
  • Alonso Alfaro-Ureña

    (Economic Division, Central Bank of Costa Rica)

  • Manuel Esteban Sánchez-Gómez

    (Economic Division, Central Bank of Costa Rica)

  • Catalina Sandoval-Alvarado

    (Department of Economic Research, Central Bank of Costa Rica)

Abstract

This paper describes the methodology and results of estimating the equilibrium real exchange rate (ERER) using the reduced-form approach known as the Behavioral Equilibrium Exchange Rate (BEER). The real exchange rate (RER) equation is estimated with quarterly data in the period between I-2007 and IV-2022, which coincides with the adoption of exchange rate flexibility regimes in Costa Rica. The results indicate that the path of the ERER is explained by the evolution of its fundamentals: labor productivity, government expenditure, international investment position, terms of trade, and the difference among local and external interest rates. Improvements in labor productivity, increases in Government spending and increases in the spread of local and external interest rates are correlated with downward movements in the equilibrium path of the RER (real appreciations). On the other hand, the more negative result in the international investment position and a fall in terms of trade explains movements towards real depreciations. During the period of analysis, there is no evidence of RER deviations from its equilibrium level beyond the coherence zone determined. Therefore, variations on the ERER trajectory are consistent with the behavior of its fundamentals.

Suggested Citation

  • Alonso Alfaro-Ureña & Manuel Esteban Sánchez-Gómez & Catalina Sandoval-Alvarado, 2024. "An Estimate of the Real Exchange Rate for Costa Rica, BEER Approach. 2007-2022," Notas Técnicas 2402, Banco Central de Costa Rica.
    • Handle: RePEc:apk:nottec:2402
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    File URL: https://repositorioinvestigaciones.bccr.fi.cr/handle/20.500.12506/393
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    References listed on IDEAS

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    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • 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

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