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Modelling the slow mean-reversion of the Central and Eastern European countries ' real exchange rates

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  • Gilles Dufrenot

    (ERUDITE - Equipe de Recherche sur l’Utilisation des Données Individuelles en lien avec la Théorie Economique - UPEM - Université Paris-Est Marne-la-Vallée - UPEC UP12 - Université Paris-Est Créteil Val-de-Marne - Paris 12, GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique)

  • Elisabeth Grimaud

    (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique)

  • Eugenie Latil

    (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique)

  • Valerie Mignon

    (CEPII - Centre d'Etudes Prospectives et d'Informations Internationales - Centre d'analyse stratégique, EconomiX - EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique)

Abstract

In this paper we propose a new modelling approach of the exchange rate misalignments in four transition countries: Hungary, Poland, Slovakia and Slovenia. We provide an empirical framework that takes into account two characteristics of these misalignments: while the fundamentals and policies adjust to restore equilibrium towards the long-term exchange rate, there are factors that hinder a fast mean-reverting dynamics. When the exchange rates adjust slowly to their equilibrium long-run values, the standard regressions that assume zero-mean misalignments present some drawbacks and one needs a model that helps to capture the time-varying aspects of the misalignment dynamics. The model proposed in this paper reproduces well the periods of overvaluation and undervaluation observed in the four countries.

Suggested Citation

  • Gilles Dufrenot & Elisabeth Grimaud & Eugenie Latil & Valerie Mignon, 2008. "Modelling the slow mean-reversion of the Central and Eastern European countries ' real exchange rates," Post-Print hal-00693052, HAL.
    • Handle: RePEc:hal:journl:hal-00693052
    DOI: 10.1111/j.1467-9957.2007.01048.x
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    2. Carlos Pestana BARROS & Zhongfei CHEN & Luis A. GIL-ALANA, 2013. "Long Memory in the Housing Price Indices in China," Asian Journal of Empirical Research, Asian Economic and Social Society, vol. 3(7), pages 785-807, July.

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