Frait, Jan, Komárek, Luboš and Melecky, Martin (2006) The real exchange rate misalignment in the five central European countries. Working Paper. University of Warwick, Department of Economics, Coventry.

Preview

PDF WRAP_Frait_twerp_739.pdf - Requires a PDF viewer such as GSview, Xpdf or Adobe Acrobat Reader Download (499Kb)

Abstract

The paper focuses on the developments of real exchange rates and their fundamental determinants in the five new EU Member States (Czech Republic, Hungary, Poland, Slovakia, and Slovenia). First, the approaches that can be used for estimation of equilibrium real exchange rates are briefly discussed. Then, we use well-established determinants of real exchange rates associated with the behavioral equilibrium exchange rate (BEER) approach to assess misalignments of the real exchange rates for the five new EU Member States. The estimates of the equilibrium exchange rates are obtained by means of both purely statistical approaches (HP filter, band-pass filter) and applying several multivariate estimation methods to our reduced-form BEER model. The results obtained indicate that the tendency towards appreciation of real exchange rates in the economies under consideration have been driven primarily by fundamental determinants.

Item Type:	Working or Discussion Paper (Working Paper)
Subjects:	H Social Sciences > HG Finance
Divisions:	Faculty of Social Sciences > Economics
Library of Congress Subject Headings (LCSH):	Foreign exchange rates -- Europe, Eastern, Equilibrium (Economics), International finance, Multivariate analysis, Europe, Eastern -- Economic conditions
Series Name:	Warwick economic research papers
Publisher:	University of Warwick, Department of Economics
Place of Publication:	Coventry
Date:	2006
Number:	No.739
Number of Pages:	34
Status:	Not Peer Reviewed
Access rights to Published version:	Open Access
Funder:	Grantová agentura České republiky [Grant Agency of the Czech Republic] (GACR)
References:	ALBEROLA, E. (2003): Real Convergence, External Disequilibria and Equilibrium Exchange Rates in EU Acceding Countries. Bank of Spain. AVALLONE, N. - LAHRECHE-REVIL, A. (1999): Le taux de change réel d’équilibre dans les pays en transition: le cas de la Hongrie, TEAM, Université Paris 1, Cahiers blancs 1999/91. BABETSKI, J. – ÉGERT, B. – KOMÁREK, L. – MELECKÝ, M. (2004): An Appropriate level of the exchange rate for ERM II and Euro Conversion of the Czech Koruna. Internal Policy Notes, the Czech National Bank, mimeo. BAFFES, J. – ELBADAWI, I. A. – O’CONNELL, S. A. (1997): Single-equation Estimation of the Equilibrium Real Exchange Rate. The World Bank Development Research Group, Policy Research Working Paper, no. 1800 (August). BALASSA, B. (1964): The Purchasing Power Parity Doctrine: A Reappraisal. Journal of Political Economy, vol. 72, pp. 584-596. BAXTER, M. - KING, R. (1995): “Measuring Business Cycles Approximate Band-Pass Filters for Economic Times Series.” NBER Working Paper, No.w5022, February. BEGG, D. – HALPERN, L. – WYPLOSZ, CH. (1999): Monetary and Exchange Rate Policies, EMU and Central and Eastern Europe. Forum Report on the Economic Policy Initiative No. 5. London: CEPR and New York, Prague: EastWest Institute. BEGUNA, A. (2002): Competitiveness and the Equilibrium Exchange Rate in Latvia. University of Latvia and EuroFaculty. EuroFaculty working Paper in Economic, no. 16 (August). BURDA, M. C. – GERLACH, S.: (1990) Exchange Rate Dynamics and Currency Unification: The Ostmark-DM Rate. CEPR Discussion Paper, no. 485. CHRISTIANO, L. - FITZGERALD, T. (1999): The Band Pass Filter. NBER Working Paper, No.w7257, July. CHRISTIANO, L. J. - FITZGERALD, T. J. (2003): The Band Pass Filter. International Economic Review, 44(2), 435-465. CLARK, P. – MACDONALD, R. (1998): Exchange Rates and Economic Fundamentals: A Methodological Comparison of BEERs and FEERs. IMF Working Paper, no. WP/98/67, May 1998. COUDERT, V. (1999): Comment Définir un Taux de Change D´équilibre Pour Les Pays Émergents? Economie internationale. 77. 1er trimestre. 45-65. CSAJBÓK, A. (2003): The Equilibrium Real Exchange Rate in Hungary: Results from Alternative Approaches. Paper presented at the 2nd workshop on Macroeconomic Policy Research. Magyar Nemzeti Bank, October. DE BROECK, M. – SLØK, T. (2001): Interpreting Real Exchange Rate Movements in Transition Countries. IMF Working Paper, no. 56/01. DETKEN C. – DIEPPE, A. – HENRY, J. – MARIN, C. – SMETS, F. (2002): Model Uncertainty and the Equilibrium Value of the Real Effective Euro Exchange Rate. European Central Bank Working Paper, no. 160 (July). ECB (2003): Policy position of the Governing Council of the ECB on Exchange Rate Issues Relating to the Acceding Countries. European Central Bank, Frankfurt am Main (18th December 2003). ÉGERT, B. - LAHRÈCHE-RÉVIL, A. (2003): Estimating the Equilibrium Exchange Rate of Central and Eastern European Countries: The Challenge of euro adoption. Weltwirtschaftliches Archiv. 139(4). 683-708. ÉGERT, B. - LOMMATZSCH, K. (2003): Equilibrium Real Exchange Rates in CEE Acceding countries: How Large Is Our Confidence (Interval)? Focus on Transition No. 2. 107-137. ÉGERT, B. (2003): Assessing Equilibrium Exchange Rates in CEE Acceding Countries: Can We Have DEER with BEER without FEER? A Critical Survey of the Literature, Oesterreichische Nationalbank, Focus on Transition, No. 2., pp. 38-106. ENDERS, W. (2004): Applied Econometric Time Series. 2nd edition. Wiley publisher. FARUQEE, H. (1995): Long Run Determinants of the Real Exchange Rate: A Stock-flow Perspective. IMF Staff Papers, March. FISCHER, C. (2002): Real Currency Appreciation in Accession Countries: Balassa-Samuelson and Investment Demand. BOFIT Discussion Paper no. 8. Institute for Economies in Transition (BOFIT). Suomen Pankki. FRAIT, J. - KOMÁREK, L. (1999): Long –term determinants of the Equilibrium Real Exchange Rate of Czech Koruna. Czech National Bank Working Paper, No. 9. [in Czech]. FRAIT, J. – KOMÁREK, L. (2001): Real Exchange Rate Trends in Transitional Countries, Warwick Economics Research Papers, Department of Economics, The University of Warwick, July 2001, No 596. GONZALO, J. – GRANGER, C. W. (1995): Estimation of Common Long-Memory Components in Cointegrated Systems. Journal of Business Economics and Statistics, Vol. 13, pp. 27.35. HALPERN, L. – WYPLOSZ, CH. (1997): Equilibrium Real Exchange Rates in Transition Economies. IMF Staff Papers, No. 4 (December). HINNOSAR, M., - R. JUKS, H. - KAADU - L. UUSKÜLA. (2003). Estimating the Equilibrium Exchange Rate of the Estonian Kroon. Bank of Estonia. mimeo. ISARD, P. – FARUQEE, H. (eds.). (1998). Exchange rate assessment: extensions of the macroeconomic balance approach. IMF Occasional Paper, No. 167, Washington DC. JOHANSEN, S. – JUSELIUS, K. (1998): Testing Structural Hypothesis in a Multivariate Cointegration Analysis of the PPP and the UIP for the UK. Journal of Econometris, Vol. 53, pp. 211-244. KAMINSKI, G. – LIZONDO, S. – REINHART, C. (1997): Leading Indicators of Currency Crises. IMF Working Paper, no. 97/79 (July). KIM, B.Y. - Korhonen, I. (2002): Equilibrium Exchange Rates in Transition Countries: Evidence from Dynamic Heterogeneous Panel Models. BOFIT Discussion Papers, no. 15. KRAJNYÁK, K. – ZETTELMEYER, J. (1998): Competitiveness in Transition Economies: What Scope for Real Appreciation? IMF Staff Papers, no. 45/98. LOMMATZSCH, K. – TOBER, S. 2002. “What is Behind the Real Appreciation of the Accession Countries’ Currencies? An investigation of the PPI-based Real Exchange Rate.” Presented at “Exchange rate strategies during the EU Enlargement“. Budapest. 27-30 November. MACDONALD (2000): Concept to Calculate Equilibrium Exchange Rate: An Overview. Deutsche Bundesbank Discussion Paper 3/00. Economic Research Group of the Deutsche Bundesbank. MACDONALD, R. – STEIN, J. L. (eds.) (1999): Equilibrium exchange rates. Kluwer Academic Press, London, U.K. MACDONALD, R. – WÓJCIK, C. (2002): Catchting Up: The Role of Demand and Supply Side Effects on the Real Exchange Rate of Accession Countries. Oesterreichische Nationalbank. Focus on Transition , no. 2/2002. MACDONALD, R. (1997): What Determines Real Exchange Rate? The long and short of it. IMF Working Paper, no. WP/97/21, January 1997. MACKINNON, J. G. (1991): Critical values for co-integration tests. In R.F. Engle and C.W.J. Granger (eds.). Long-run economic relationships. Oxford University Press. 267-276. MAESO-FERNANDEZ, F. – OSBAT, CH. – SCHNATZ, B. (2004): Towards the Estimation of Equilibrium Exchagne Rates for CEE Acceding Countries: Methodological Issues and a Panel Cointegration Perspective. European Central Bank Working Paper Series, no. 353 (April). MAURIN, L. (2001): Fundamental Determinants of RER for Transition Countries. In: Stierle, M. H. and T. Birringer (eds.). Economics of Transition: Theory, Experiences and EU-Elargement. Berlin: Verlag für Wissenschaft ufn Forschung. MELTZER, A. (1993): Real Exchange Rates: Some Evidence for the Post-war Years. In: Dimensions of Monetary Policy. Proceedings of the Seventeenth Annual Economic Policy Conference of the Federal Reserve Bank of St. Louis, Federal Reserve Bank of St. Louis Review (March/April). PESARAN, M. H. – SHIN, Y. – SMITH, R. J. (2001): Bounds testing approaches to the analysis of level relationships. Journal of Applied Econometrics, No. 16(3), pp.289-326. PESARARAN, M.H. - SHIN, Y. (1995). An Autoregresive Distributed Lag Modelling Approach to Cointegration Analysis, DAE Working Paper, No 9514, Department of Applied Economics, University of Cambridge. RAHN, J. (2003): Bilateral Equilibrium Exchange Rates of the EU Accession Countries Against the Euro. BOFIT Discussion Papers No. 11. RAZIN, O. – COLLINS, S. (1997): Real Exchange Rate Misalignments and Growth. In: Razin, A. – Sadka, E. (eds.): International Economic Integration: Public Economics Perspectives. Cambridge, Cambridge University Press, 1997. SAMUELSON, P. A. (1964): Theoretical Notes on Trade Problems. Review of Economics and Statistics, vol. 46, pp. 145-154. STEIN, J. – ALLEN, P. (eds.), (1995): Fundamental Determinants of Exchange Rates. Oxford, Clarendon Press. STEIN, J. (1994): The Natural Real Exchange Rate of the US-dollar and Determinants of Capital Flows. In: J. Williamson: Estimating Equilibrium Exchange Rates. Washington, D. C., pp. 133-176. WADHWANI, S. (1999) ‘Sterling’s Puzzling Behaviour’. Bank of England Quarterly Bulletin November. WILLIAMSON, J. (1994): Estimating equilibrium exchange rates. Washington, D.C., Institute for International Economics, 1994.
URI:	http://wrap.warwick.ac.uk/id/eprint/1455

Request changes to a record

Actions (login required)

View Item