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Equilibrium Exchange Rates in EU New Members: Applicable for Setting the ERM II Central Parity?

  • Horvath, Roman
  • Komarek, Lubos

In this paper we discuss the estimation and methodology of the real equilibrium exchange rate partial equilibrium models and analyze to what extent the resulting estimates are applicable for setting the central parity prior to ERM II entry in the new EU member states. Given the uncertainty surrounding the estimates, we argue that they are informative in the sign rather than the size of the misalignment of the exchange rate, but may still serve as useful consistency checks for the decision on the setting of the central parity. We argue that policy makers should consider the estimates in their decision-making only if the real exchange rate is substantially misaligned.

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File URL: http://mpra.ub.uni-muenchen.de/1180/1/MPRA_paper_1180.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 1180.

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Date of creation: 20 Oct 2006
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Handle: RePEc:pra:mprapa:1180
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Web page: http://mpra.ub.uni-muenchen.de

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  1. Egert, Balazs & Halpern, Laszlo, 2006. "Equilibrium exchange rates in Central and Eastern Europe: A meta-regression analysis," Journal of Banking & Finance, Elsevier, vol. 30(5), pages 1359-1374, May.
  2. Byung-Yeon Kim & Iikka Korhonen, 2002. "Equilibrium Exchange Rates in Transition Countries: Evidence from Dynamic Heterogeneous Panel Models," Macroeconomics 0212014, EconWPA.
  3. Ian Babetskii & Balazs Egert, 2005. "Equilibrium Exchange Rate in the Czech Republic: How Good is the Czech BEER?," CERGE-EI Working Papers wp267, The Center for Economic Research and Graduate Education - Economic Institute, Prague.
  4. Martin Melecký & Luboš Komárek, 2007. "The Behavioral Equilibrium Exchange Rate of the Czech Koruna," Transition Studies Review, Springer, vol. 14(1), pages 105-121, May.
  5. Coricelli, Fabrizio & Jazbec, Bostjan, 2001. "Real Exchange Rate Dynamics in Transition Economies," CEPR Discussion Papers 2869, C.E.P.R. Discussion Papers.
  6. Égert, Balázs & Lommatzsch, Kirsten, 2004. "Equilibrium exchange rates in the transition: The tradable price-based real appreciation and estimation uncertainty," BOFIT Discussion Papers 9/2004, Bank of Finland, Institute for Economies in Transition.
  7. Detken, Carsten & Dieppe, Alistair & Henry, Jérôme & Marin, Carmen & Smets, Frank, 2002. "Model uncertainty and the equilibrium value of the real effective euro exchange rate," Working Paper Series 0160, European Central Bank.
  8. Ronald Macdonald & Mark P. Taylor, 1992. "Exchange Rate Economics: A Survey," IMF Staff Papers, Palgrave Macmillan, vol. 39(1), pages 1-57, March.
  9. Balazs Egert & Amina Lahrèche-Revil, 2003. "Estimating the Fundamental Equilibrium Exchange Rate of Central and Eastern European Countries; The EMU Enlargement Perspective," Working Papers 2003-05, CEPII research center.
  10. Martin Cihak & Tomas Holub, 2003. "Price Convergence to the EU: What Do the 1999 ICP Data Tell Us?," Working Papers 2003/02, Czech National Bank, Research Department.
  11. Kateřina Šmídková & Ray Barrell & Dawn Holland, 2003. "Estimates of fundamental real exchange rates for the five eu pre-accession countries," Prague Economic Papers, University of Economics, Prague, vol. 2003(4).
  12. Lionel Halpern & Charles Wyplosz, 1996. "Equilibrium Exchange Rates in Transition Economies," IMF Working Papers 96/125, International Monetary Fund.
  13. Rebecca L Driver & Peter F Westaway, 2005. "Concepts of equilibrium exchange rates," Bank of England working papers 248, Bank of England.
  14. Frait , Jan & Komárek, Luboš, 2001. "REAL Exchange rate trends in transitional countries," The Warwick Economics Research Paper Series (TWERPS) 596, University of Warwick, Department of Economics.
  15. Michal Rubaszek, 2004. "A Model of Balance of Payments Equilibrium Exchange Rate," Eastern European Economics, M.E. Sharpe, Inc., vol. 42(3), pages 5-22, May.
  16. Canova, Fabio, 1998. "Detrending and business cycle facts," Journal of Monetary Economics, Elsevier, vol. 41(3), pages 475-512, May.
  17. Hochreiter, Eduard & Tavlas, George S., 2004. "On the road again: an essay on the optimal path to EMU for the new member states," Journal of Policy Modeling, Elsevier, vol. 26(7), pages 793-816, October.
  18. Lucio Sarno & Ibrahim Chowdhury, 2003. "The Behaviour of the Real Exchange Rate: Evidence from an Alternative Price Index," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 32(3), pages 295-333, November.
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