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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.

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File URL: http://www2.warwick.ac.uk/fac/soc/economics/research/workingpapers/2008/twerp596.pdf
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Paper provided by University of Warwick, Department of Economics in its series The Warwick Economics Research Paper Series (TWERPS) with number 596.

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Length: 35 pages
Date of creation: 2001
Date of revision:
Handle: RePEc:wrk:warwec:596
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Web page: http://www2.warwick.ac.uk/fac/soc/economics/
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  1. Hamid Faruqee, 1994. "Long-Run Determinants of the Real Exchange Rate; A Stock-Flow Perspective," IMF Working Papers 94/90, International Monetary Fund.
  2. 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.
  3. John A. Tatom, 1994. "Currency appreciation and "deindustrialization": a European perspective," Working Papers 1992-006, Federal Reserve Bank of St. Louis.
  4. Sebastion Edwards, 1988. "Real and Monetary Determinants of Real Exchange Rate Behavior: Theory and Evidence from Developing Countries," UCLA Economics Working Papers 506, UCLA Department of Economics.
  5. 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.
  6. 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.
  7. repec:fth:inseep:9645 is not listed on IDEAS
  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. Ronald MacDonald, 1997. "What Determines Real Exchange Rates? The Long and Short of it," IMF Working Papers 97/21, International Monetary Fund.
  11. Halpern, László, 1996. "Real Exchange Rates and Exchange Rate Policy in Hungary," CEPR Discussion Papers 1366, C.E.P.R. Discussion Papers.
  12. Halpern, László & Wyplosz, Charles, 1995. "Equilibrium Real Exchange Rates in Transition," CEPR Discussion Papers 1145, C.E.P.R. Discussion Papers.
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