Real Equilibrium Exchange Rate in Colombia: Thousands of VEC Models Approach

Andrea Salazar-Díaz, Aaron Garavito, Sergio Restrepo-Ángel and Leidy Viviana Arcila-Agudelo

Borradores de Economia from Banco de la Republica de Colombia

Abstract: Behavioral Equilibrium Exchange Rate (BEER) models suggest many variables as potential drivers of equilibrium real exchange rates (ERER). This gives rise to model uncertainty issues, as ERER depends and varies, often drastically, on a particular set of chosen variables. We address this issue by estimating thousands of Vector Error Correction (VEC) specifications for Colombian data between 2000Q1-2019Q4. According to an extensive literature review, we employ thirty-five proxies categorized among five fixed groups of economic fundamentals that underlie the ERER: Indebtedness, Fiscal sector, Productivity, Terms-of-Trade, and Interest Rate Differentials. Our approach derives an empirical distribution of ERER that allows us to state with greater certainty, among hundreds of plausible economic specifications, whether the real exchange rate is either misaligned or in equilibrium. **** RESUMEN: La metodología Behavioral Equilibrium Exchange Rate (BEER) sugiere muchas variables como fundamentales de la tasa de cambio real de equilibrio (TCRE). Esto genera incertidumbre en la especificación de los modelos debido a que la TCRE depende y varía, a menudo de manera drástica, del conjunto particular de variables elegidas. Abordamos este problema estimando miles de especificaciones de vectores de corrección de errores (VEC) para datos colombianos entre 2000Q1-2019Q4. De acuerdo con una extensa revisión de la literatura, empleamos treinta y cinco proxies clasificadas entre cinco grupos fijos de fundamentales económicos que subyacen la TCRE: endeudamiento, sector fiscal, productividad, términos de intercambio y diferenciales de tasas de interés. Nuestro enfoque deriva una distribución empírica de la TCRE que nos permite afirmar con mayor certeza, entre cientos de especificaciones económicas plausibles, si el tipo de cambio real está desalineado o en equilibrio.

Keywords: Real Exchange Rate; Misalignment; VEC; Tasa de cambio real; desalineamiento; VEC (search for similar items in EconPapers)
JEL-codes: C32 F31 F32 F41 (search for similar items in EconPapers)
Pages: 29
Date: 2022-12
New Economics Papers: this item is included in nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://doi.org/10.32468/be.1221

Related works:
Journal Article: Real Equilibrium Exchange Rate in Colombia: Thousands of VEC Models Approach (2023)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bdr:borrec:1221

Access Statistics for this paper

More papers in Borradores de Economia from Banco de la Republica de Colombia Cra 7 # 14-78. Contact information at EDIRC.
Bibliographic data for series maintained by Clorith Angélica Bahos Olivera ().