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Real Equilibrium Exchange Rate Estimates: To What Extent Applicable for Setting the Central Parity?

Author

Listed:
  • Roman Hotvath

    (Czech National Bank & Charles University)

Abstract

The objective of this paper is twofold. First, we provide an introduction on estimation and methodology of the real equilibrium exchange rate. Second, we discuss to what extent are these estimates applicable for setting the central parity. Given the uncertainty surrounding the estimates, they are informative in the sign rather than the size of the misalignment of exchange rate, but may serve as useful consistency checks for the decision about setting the central parity. We argue that policy makers shall consider the estimates in their decision- making only if the real exchange rate is substantially misaligned (i.e. more than 10% as a rule of thumb).

Suggested Citation

  • Roman Hotvath, 2005. "Real Equilibrium Exchange Rate Estimates: To What Extent Applicable for Setting the Central Parity?," International Finance 0509006, University Library of Munich, Germany.
  • Handle: RePEc:wpa:wuwpif:0509006
    Note: Type of Document - pdf; pages: 24
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    References listed on IDEAS

    as
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    JEL classification:

    • F3 - International Economics - - International Finance
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

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