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Economic convergence and the fundamental equilibrium exchange rate in Poland

  • Rubaszek, Michał

The paper presents an extended version of the fundamental equilibrium exchange rate model (FFER). By introducing potential output into the specification of the foreign trade equations of the partial equilibrium FEER model we show that, under some plausible assumptions, the calculated level of the equilibrium exchange rate is consistent with the estimates of the behavioral equilibrium exchange (BEER). Moreover, we indicate that including the terms of trade as an explanatory variable in a reduced-form BEER equation for the real exchange rate might lead to the indeterminacy of the parameter estimates. The proposed model is applied to analyze fluctuations of the Polish zloty. We show that the real appreciation of the zloty is to a largely an equilibrium phenomenon.

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File URL: http://mpra.ub.uni-muenchen.de/12910/1/MPRA_paper_12910.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 12910.

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Date of creation: Oct 2008
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Handle: RePEc:pra:mprapa:12910
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  9. Virginie Coudert & Cécile Couharde, 2003. "Exchange Rate Regimes and Sustainable Parities for ceecs in the Run-up to emu Membership," Revue économique, Presses de Sciences-Po, vol. 54(5), pages 983-1012.
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  14. Peter Isard & Hamid Faruqee, 1998. "Exchange Rate Assessment; Extension of the Macroeconomic Balance Approach," IMF Occasional Papers 167, International Monetary Fund.
  15. Serena Ng & Pierre Perron, 2001. "LAG Length Selection and the Construction of Unit Root Tests with Good Size and Power," Econometrica, Econometric Society, vol. 69(6), pages 1519-1554, November.
  16. Gian-Maria Milesi-Ferretti & Philip R. Lane, 2006. "Capital Flows to Central and Eastern Europe," IMF Working Papers 06/188, International Monetary Fund.
  17. Aleksander Aristovnik, 2006. "Current Account Sustainability In Selected Transition Countries," William Davidson Institute Working Papers Series wp844, William Davidson Institute at the University of Michigan.
  18. Marc Klau & San Sau Fung, 2006. "The new BIS effective exchange rate indices," BIS Quarterly Review, Bank for International Settlements, March.
  19. Maeso-Fernandez, Francisco & Osbat, Chiara & Schnatz, Bernd, 2005. "Pitfalls in estimating equilibrium exchange rates for transition economies," Economic Systems, Elsevier, vol. 29(2), pages 130-143, June.
  20. Ronald MacDonald & Peter B. Clark, 1998. "Exchange Rates and Economic Fundamentals; A Methodological Comparison of Beers and Feers," IMF Working Papers 98/67, International Monetary Fund.
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