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Behavioral and Permanent Zloty/Euro Equilibrium

Author

Listed:
  • Joanna Beza-Bojanowska

    (National Bank of Poland)

Abstract

Poland is expected to enter the Exchange Rate Mechanism II (ERM II). The European Central Bank recommends that the ERM II central rate should reflect the best possible assessment of the equilibrium exchange rate. Since the equilibrium rate is changing in time, it is important to identify the pushing and pulling forces of the exchange rate. This knowledge will let the authorities to defend only the exchange rate that is in equilibrium and to assess outcomes of their actions. We use the VEC approach of Johansen to estimate the behavioral equilibrium exchange rate and to identify the pushing forces of the Polish zloty/euro rate. We apply the Gonzalo-Granger decomposition to calculate the permanent equilibrium exchange rate and to identify the pulling forces of the zloty exchange rate. We demonstrate that this approach may be useful for Polish authorities while entering the ERM II as well as within that mechanism.

Suggested Citation

  • Joanna Beza-Bojanowska, 2009. "Behavioral and Permanent Zloty/Euro Equilibrium," Working Papers 31, Department of Applied Econometrics, Warsaw School of Economics.
    • Handle: RePEc:wse:wpaper:31
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    File URL: http://cejeme.org/publishedarticles/2009-40-31-633740820039734415-6860.pdf
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    More about this item

    Keywords

    equilibrium exchange rate; cointegration analysis; Gonzalo- Granger decomposition; ERM II;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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