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REAL Exchange rate trends in transitional countries


  • Frait , Jan
  • Komárek, Luboš


The paper presents an analysis of the determinants of the real exchange rate with emphasis on its long-term aspects and searching for the equilibrium paths. It introduces the behavioral models of exchange rates (especially the BEER and the NATREX), that are alternatives to the often-used fundamental models of the FEER type. Authors constructed the theoretical and econometric behavioral model, which could analyze the medium-term and long-term dynamics of the real exchange rate. This paper also introduces real exchange rate as an indicator of convergence for transitional countries to EU countries and analyses the link between real exchange rate and double speed economy or deindustrialization, respectively. This analysis is relevant almost for all transitional countries now. The paper explains the appreciation trend of real exchange rates in transitional economies. It is identifying the set of factors that let to sustainable real appreciation of the Czech Koruna and also the set of factors that possibly caused unsustainable real depreciation in the past. There is also a set of arguments against any other rapid real appreciation of the Czech Koruna. The paper also tried to fuel these arguments by an econometric analysis, which used our behavioral model of the equilibrium real exchange rate. It was shown that the Czech real exchange rate was especially determined by real fundamental factors: productivity, terms of trade and world interest rates and foreign direct investment.

Suggested Citation

  • 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.
  • Handle: RePEc:wrk:warwec:596

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    References listed on IDEAS

    1. Pesaran, M. H. & Shin, Y. & Smith, R. J., 1996. "Testing for the 'Existence of a Long-run Relationship'," Cambridge Working Papers in Economics 9622, Faculty of Economics, University of Cambridge.
    2. John A. Tatom, 1995. "Currency Appreciation and ‘Deindustrialisation’: A European Perspective," The World Economy, Wiley Blackwell, vol. 18(4), pages 519-541, July.
    3. László Halpern, 1996. "Real exchange rate and exchange rate policy in Hungary," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 4(1), pages 211-228, May.
    4. Halpern, László & Wyplosz, Charles, 1995. "Equilibrium Real Exchange Rates in Transition," CEPR Discussion Papers 1145, C.E.P.R. Discussion Papers.
    5. Hamid Faruqee, 1995. "Long-Run Determinants of the Real Exchange Rate: A Stock-Flow Perspective," IMF Staff Papers, Palgrave Macmillan, vol. 42(1), pages 80-107, March.
    6. repec:crs:wpaper:9645 is not listed on IDEAS
    7. Lothian, James R & Taylor, Mark P, 1996. "Real Exchange Rate Behavior: The Recent Float from the Perspective of the Past Two Centuries," Journal of Political Economy, University of Chicago Press, vol. 104(3), pages 488-509, June.
    8. Peter Isard & Hamid Faruqee, 1998. "Exchange Rate Assessment; Extension of the Macroeconomic Balance Approach," IMF Occasional Papers 167, International Monetary Fund.
    9. Tarhan Feyzioglu, 1997. "Estimating the Equilibrium Real Exchange Rate; An Application to Finland," IMF Working Papers 97/109, International Monetary Fund.
    10. Edwards, Sebastian, 1988. "Real and monetary determinants of real exchange rate behavior: Theory and evidence from developing countries," Journal of Development Economics, Elsevier, vol. 29(3), pages 311-341, November.
    11. Ronald MacDonald, 1997. "What Determines Real Exchange Rates? The Long and Short of it," IMF Working Papers 97/21, International Monetary Fund.
    12. 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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    Cited by:

    1. Ca' Zorzi, Michele & De Santis, Roberto A., 2003. "The admission of accession countries to an enlarged monetary union: a tentative assessment," Working Paper Series 216, European Central Bank.
    2. Michele Ca' Zorzi & Roberto A. De Santis, 2004. "The Eastward Enlargement of the European Monetary Union," EUI-RSCAS Working Papers 31, European University Institute (EUI), Robert Schuman Centre of Advanced Studies (RSCAS).
    3. Nikolaos Giannellis & Athanasios Papadopoulos, 2007. "Estimating the Equilibrium Effective Exchange Rate for Potential EMU Members," Open Economies Review, Springer, vol. 18(3), pages 307-326, July.
    4. Roman Hotvath, 2005. "Real Equilibrium Exchange Rate Estimates: To What Extent Applicable for Setting the Central Parity?," International Finance 0509006, EconWPA.
    5. Mirdala, Rajmund, 2013. "Current Account Adjustments and Real Exchange Rates in the European Transition Economies," MPRA Paper 48901, University Library of Munich, Germany.
    6. Horvath, Roman & Komarek, Lubos, 2006. "Equilibrium Exchange Rates in EU New Members: Applicable for Setting the ERM II Central Parity?," MPRA Paper 1180, University Library of Munich, Germany.
    7. Kateřina Šmídková & Aleš Bulíř, 2004. "Would Fast Sailing towards the Euro Be Smooth? What Fundamental Real Exchange Rates Tells Us about Acceding Economies," Working Papers IES 64, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised 2004.
    8. Luboš Komárek & Martin Motl, 2012. "Behaviorální a fundamentální rovnovážný měnový kurz české koruny
      [Behavioural and Fundamental Equilibrium Exchange Rate of the Czech Koruna]
      ," Politická ekonomie, University of Economics, Prague, vol. 2012(2), pages 147-166.
    9. K. Rajmund MIRDALA, 2012. "Sources Of Exchange Rate Volatility In The European Transition Economies. Effects Of Economic Crisis Revealed," Journal of Applied Economic Sciences, Spiru Haret University, Faculty of Financial Management and Accounting Craiova, vol. 7(3(21)/ Fa), pages 270-282.
    10. Ota Melcher, 2015. "Long Term Trends in the CZK Development," Acta Oeconomica Pragensia, University of Economics, Prague, vol. 2015(2), pages 3-21.
    11. Martin Melecký & Luboš Komárek, 2007. "The Behavioral Equilibrium Exchange Rate of the Czech Koruna," Transition Studies Review, Springer;Central Eastern European University Network (CEEUN), vol. 14(1), pages 105-121, May.
    12. Mirdala, Rajmund, 2013. "Real Output and Prices Adjustments under Different Exchange Rate Regimes," MPRA Paper 46879, University Library of Munich, Germany.
    13. Colque H., Paul, 2006. "Fundamentos del Tipo de Cambio Real de Equilibrio," Documentos de trabajo 4/2006, Instituto de Investigaciones Socio-Económicas (IISEC), Universidad Católica Boliviana.
    14. Ondrej Schneider & Jan Zapal, 2006. "Fiscal Policy in New EU Member States: Go East, Prudent Man!," Post-Communist Economies, Taylor & Francis Journals, vol. 18(2), pages 139-166.
    15. Roman Horváth, 2005. "Real Equilibrium Exchange Rate Estimates: To What Extent Are They Applicable for Setting the Central Parity?," Working Papers IES 75, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised 2005.
    16. Piritta Sorsa & Dimitar Chobanov, 2004. "Competitiveness in Bulgaria; An Assessment of the Real Effective Exchange Rate," IMF Working Papers 04/37, International Monetary Fund.
    17. Frenkel Michael & Koske Isabell, 2012. "Are the Real Exchange Rates of the New EU Member Countries in Line with Fundamentals? – Implications of the NATREX Approach," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 232(2), pages 129-145, April.
    18. Frait, Jan & Komarek, Lubos & Meleck, Martin, 2006. "The Real Exchange Rate Misalignment in the Five Central European Countries," The Warwick Economics Research Paper Series (TWERPS) 739, University of Warwick, Department of Economics.
    19. Kateřina Šmídková & Aleš Bulíř, 2005. "Would Fast Sailing Towards the Euro Be Smooth? What Fundamental Real Exchange Rates Tell Us," Prague Economic Papers, University of Economics, Prague, vol. 2005(4), pages 291-316.
    20. Hossain, Monzur, 2009. "Do Currency Regime and Developmental Stage Matter for Real Exchange Rate Volatility? A Cross-Country Analysis," MPRA Paper 24868, University Library of Munich, Germany.
    21. Aurel Iancu, 2008. "Nominal Convergence," Review of Economic and Business Studies, Alexandru Ioan Cuza University, Faculty of Economics and Business Administration, issue 2, pages 53-73, November.
    22. Mirdala, Rajmund, 2012. "Macroeconomic Aspects of Real Exchange Rate Volatility in the Central European Countries," MPRA Paper 40910, University Library of Munich, Germany.
    23. Rajmund Mirdala, 2015. "Sources of Real Exchange Rate Fluctuations in New EU Member Countries," FIW Working Paper series 160, FIW.

    More about this item



    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics


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