BOFIT Discussion Papers, Institute for Economies in Transition, Bank of Finland
No 9/2004:
Equilibrium exchange rates in the transition: The tradable price-based real appreciation and estimation uncertainty
Balázs Égert ()
and Kirsten Lommatzsch
Abstract: This paper sets out to estimate equilibrium real exchange
rates for the Czech Republic, Hungary, Poland, Slovakia and Slovenia. A
theoretical model is developed that provides an explanation for the
appreciation of the real exchange rate based on tradable prices in the
acceding countries. Our model can be considered as a competing but also
completing framework to the traditional Balassa-Samuelson model. With this
as a background, alternative cointegration methods are applied to time
series (Engle-Granger, DOLS, ARDL and Johansen) and to three small-size
panels (pooled and fixed effect OLS, DOLS, PMGE and MGE), which leaves us
with around 5,000 estimated regressions. This enables us to examine the
uncertainty surrounding estimates of equilibrium real exchange rates and
the size of the underlying real misalignments.
Keywords: real exchange rate; equilibrium exchange rate; tradable prices; transition; cointegration; (follow links to similar papers)
JEL-Codes: F31; (follow links to similar papers)
63 pages, June 10, 2004
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