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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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  16. Marc Klau & San Sau Fung, 2006. "The new BIS effective exchange rate indices," BIS Quarterly Review, Bank for International Settlements, March.
  17. Jiri Popiera & Jan Bruha, 2007. "Inquiries on Dynamics of Transition Economy Convergence in a Two-Country Model," 2007 Meeting Papers 587, Society for Economic Dynamics.
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