DEBT ADJUSTED REAL EXCHANGE RATE OF THE CZECH CURRENCY

Jan Frait () and Luboš KOMÁREK

Politická ekonomie, 1999, vol. 1999, issue 1

Abstract: The paper aims at enriching current discussions about the equilibrium exchange rate level for the Czech currency, and generally for transition economies. The main idea of the paper is to introduce one of the newly emerged conceptions of real exchange rate which can indicate potential overvaluation or undervaluation of the exchange rate. The conception which is called DARER (Debt Adjusted Real Exchange Rate) takes into account the effects of current account deficits and of foreign debt on the equilibrium price level and thus real exchange rate. The importance of this particular conception is given by the fact many of the transitional countries finance their long-term deficits on current account by capital inflows which sometimes contributes to the exchange rate misalignments. DARER can send warning singals indicating that the current level of the real exchange rate can be no longer sustained.

Keywords: real exchange rate; current account; foreign debt; exchange rate overvaluation (search for similar items in EconPapers)
Date: 1999

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