Equilibrium Exchange Rates in the Transition: The Tradable Price-Based Real Appreciation and Estimation Uncertainty

63 Pages Posted: 27 Apr 2004

See all articles by Balázs Égert

Balázs Égert

Organization for Economic Co-Operation and Development (OECD); CESifo (Center for Economic Studies and Ifo Institute); Université Paris X Nanterre - Department of Economics; William Davidson Institute

Kirsten Lommatzsch

German Institute for Economic Research (DIW Berlin)

Date Written: April 2004

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

JEL Classification: F31

Suggested Citation

Egert, Balazs and Lommatzsch, Kirsten, Equilibrium Exchange Rates in the Transition: The Tradable Price-Based Real Appreciation and Estimation Uncertainty (April 2004). William Davidson Institute Working Paper No. 676, BOFIT Discussion Paper No. 9/2004, Available at SSRN: https://ssrn.com/abstract=531162 or http://dx.doi.org/10.2139/ssrn.531162

Balazs Egert (Contact Author)

Organization for Economic Co-Operation and Development (OECD) ( email )

2 rue Andre Pascal
Paris Cedex 16, 75775
France

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Université Paris X Nanterre - Department of Economics

Nanterre Cedex, 92001
France

William Davidson Institute

724 E. University Ave.
Wyly Hall
Ann Arbor, MI 48109-1234
United States

Kirsten Lommatzsch

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstraße 58
Berlin, 10117
Germany

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