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

Listed author(s):
  • Roman Hotvath

    (Czech National Bank & Charles University)

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).

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File URL: http://econwpa.repec.org/eps/if/papers/0509/0509006.pdf
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Paper provided by EconWPA in its series International Finance with number 0509006.

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Length: 24 pages
Date of creation: 20 Sep 2005
Handle: RePEc:wpa:wuwpif:0509006
Note: Type of Document - pdf; pages: 24
Contact details of provider: Web page: http://econwpa.repec.org

References listed on IDEAS
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  17. Gonzalo, J. & Granger, C., 1992. "Estimation of Common Long-Memory Components in Cointegrated Systems," Papers 4, Boston University - Department of Economics.
  18. 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.
  19. Louis Kuijs & Alain Borghijs, 2004. "Exchange Rates in Central Europe; A Blessing or a Curse?," IMF Working Papers 04/2, International Monetary Fund.
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