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

Ian Babetskii () and Balázs Égert
Authors registered in the RePEc Author Service: Jan Babecký

No wp781, William Davidson Institute Working Papers Series from William Davidson Institute at the University of Michigan

Abstract: This paper investigates the equilibrium exchange rate of the Czech koruna using the reduced form equation of the stock-ow approach advocated, for instance, by Faruqee (1995) and Alberola and others (1999). We investigate whether or not 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 Behavioural Equilibrium Exchange Rate (BEER) popularised by MacDonald (1997) and Clark and MacDonald (1998) in that the Czech real exchange rate vis-à-vis the euro is regressed on the dual productivity differential and the net foreign assets position, based on which actual and total misalignment gures 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:M1 to 2004:M9 and applying several alternative cointegration techniques, we identify a period of an overvaluation in 1997 and in 1999, an increasing overvaluation till 2002, an undervaluation in 2003 and a correction towards equilibrium in the second half of 2004

Keywords: Equilibrium exchange rate; real exchange rate; behavioral equilibrium exchange rate; Czech koruna, transition economies; stock-ow approach; productivity. (search for similar items in EconPapers)
JEL-codes: F31 (search for similar items in EconPapers)
Pages: pages
Date: 2005-07-01
New Economics Papers: this item is included in nep-cba, nep-fmk, nep-ifn and nep-tra
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Related works:
Journal Article: 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)
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