Estimation of the Behavioral Equilibrium Real Exchange Rate of the Czech Koruna
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Date
2010-12
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Mark
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Vysoké učení technické v Brně, Fakulta podnikatelská
Abstract
Purpose of the article The paper examines the behavior of the real exchange rate in the Czech Republic.
It focuses on the analysis of its driving forces with the emphasis on the turbulences which
have been lately seen in the financial and real sector of the economy.
Methodology/methods Real equilibrium exchange rate can be estimated using various approaches
ranging from purely statistical to fully structural models. In this paper it is estimated using the BEER
methodology, i.e. behavioral equilibrium exchange rate. The BEER approach as applied here rests on
building vector error correction models which relate the behavior of the actual real exchange rate to
various economic fundamentals from both the real and financial sector of the economy.
Scientific aim The estimated behavioral equilibrium exchange rate serves as a benchmark to which
the actual behavior of real exchange rate is compared. The paper also points to various problems that
are faced when estimating the real equilibrium exchange rate in a posttransitive economy.
Findings Three variants of the model, which differ in the respective fundamental variables inluded in
the estimation, are estimated in the paper. The gap between the estimated real equilibrium exchange
rate and real exchange rate as well as the key determinants of the real equilibrium exchange rate are
analyzed and compared. The models show that the misalignment between the real exchange rate and
fundamentals have narrowed in the recession and post recession period. The key drivers of the real
equilibrium exchange rate are the productivity differential, real interest rate differential and net foreign
assets.
Conclusions (limits, implications etc) The relatively short time series for the Czech economy, especially
for some of the variables, do not enable to make reliable estimation of models which would
include all of the variables discussed in this paper.
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Trendy ekonomiky a managementu. 2011, IV, č. 7, s. 48-56. ISSN 1802-8527.
http://www.fbm.vutbr.cz/cs/fakulta/vedecky-casopis/aktualni-cislo/870-cislo7
http://www.fbm.vutbr.cz/cs/fakulta/vedecky-casopis/aktualni-cislo/870-cislo7
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en
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© Vysoké učení technické v Brně, Fakulta podnikatelská