Global Value Chains and Equilibrium Exchange Rate: Evidence from Central European Economies

Kamila Kuziemska-Pawlak and Jakub Mućk

No 354, NBP Working Papers from Narodowy Bank Polski

Abstract: This paper proposes an extension of the fundamental equilibrium exchange rate (FEER) model that accounts for the trade linkages within the Global Value Chains (GVCs). In the modified FEER framework, both backward and forward linkages are taken into consideration. To demonstrate the empirical relevance of the complex nature of existing trade linkages, the proposed FEER model is applied to analyze exchange rate fluctuations of the selected Central and Eastern European countries against the euro. It is documented that in Czechia, Hungary, and Poland the standard FEER framework predicts rapid appreciation of the equilibrium exchange rate after 2010, which implies deepening undervaluation of the actual real exchange rate towards the end of the analysed period. Instead, when the GVCs’ linkages are taken into account in the framework, actual real exchange rates are broadly in line with the fundamental equilibrium exchange rates, and hence the missing real appreciation of the Czech krone, the Hungarian forint and the Polish zloty is to a large extent an equilibrium phenomenon.

Keywords: exchange rate; current account; foreign trade; Global Value Chains (search for similar items in EconPapers)
JEL-codes: C32 C33 F12 F31 F32 (search for similar items in EconPapers)
Pages: 53
Date: 2022
New Economics Papers: this item is included in nep-eec, nep-int, nep-opm and nep-tra
References: Add references at CitEc
Citations:

Downloads: (external link)
https://static.nbp.pl/publikacje/materialy-i-studia/354_en.pdf (application/pdf)

Related works:
Working Paper: Global Value Chains and Equilibrium Exchange Rate: Evidence from Central European Economies (2024)
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:nbp:nbpmis:354

Access Statistics for this paper

More papers in NBP Working Papers from Narodowy Bank Polski Contact information at EDIRC.
Bibliographic data for series maintained by Jakub Growiec ().