Equilibrium Exchange Rate in the Czech Republic: How Good is the Czech BEER?

Ian Babetskii () and Balázs Égert
Additional contact information
Ian Babetskii: International Economic Analysis Division, Czech National Bank; CERGE-EI, Charles University in Prague; and CNRS-ROSES, University of Paris I-Sorbonne
Authors registered in the RePEc Author Service: Jan Babecký

Czech Journal of Economics and Finance (Finance a uver), 2005, vol. 55, issue 5-6, 232-252

Abstract: The paper investigates the equilibrium exchange rate of the Czech koruna using the reduced-form equation of the stock-flow approach advocated by, for example, Faruqee (1995) and Alberola et al. (1999). We investigate whether the observed real exchange rate of the Czech koruna is close to its equilibrium value over the period from 1993 to 2004. Our empirical approach is tantamount to the behavioral equilibrium exchange rate (BEER), popularized by MacDonald (1997) and Clark and MacDonald (1998), in that the Czech real exchange rate vis-a`-vis the euro is regressed on the dual productivity differential; and the net foreign assets position, based on which actual and total misalignment figures, are derived in a time-series context. In other words, we check the quality of the Czech BEER. We also study the impact of a possible initial undervaluation on the estimated equilibrium exchange rate. Employing monthly time series from 1993, and applying several alternative cointegration techniques, we identify a period of an overvaluation in 1997 and in 1999, an increasing overvaluation afterwards, an undervaluation in 2003, and a correction toward equilibrium in the second half of 2004.

Keywords: behavioral equilibrium exchange rate; Czech koruna; equilibrium exchange rate; productivity; real exchange rate; stock-flow approach; transition economies (search for similar items in EconPapers)
JEL-codes: F31 (search for similar items in EconPapers)
Date: 2005
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (19)

Downloads: (external link)
http://journal.fsv.cuni.cz/storage/1019_s_232_252.pdf (application/pdf)

Related works:
Working Paper: Equilibrium Exchange Rate in the Czech Republic: How Good is the Czech BEER? (2005)
Working Paper: Equilibrium Exchange Rate in the Czech Republic: How Good is the Czech BEER? (2005)
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:fau:fauart:v:55:y:2005:i:5-6:p:232-252

Access Statistics for this article

More articles in Czech Journal of Economics and Finance (Finance a uver) from Charles University Prague, Faculty of Social Sciences Contact information at EDIRC.
Bibliographic data for series maintained by Natalie Svarcova ().