Estimation of Equilibrium Level of Real Effective Exchange Rate of Azerbaijan Using Behavioral Effective Exchange Rate Model

Vugar Rahimov () and Heyran Aliyeva ()
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Vugar Rahimov: Central Bank of Azerbaijan Republic
Heyran Aliyeva: Central Bank of Azerbaijan Republic

No 1902, Working Papers from Central Bank of Azerbaijan Republic

Abstract: In this paper, we examine the main variables affecting the REER of Azerbaijan using behavioral equilibrium exchange rate model and compute the degree of misalignment of actual REER from the equilibrium exchange rate suggested by the estimated model over 2003Q1-2018Q1. According to the results, own lag (inertia) of REER, labor productivity differentials with the main trading partners, real oil price and interest rate differentials with external sector are the main determinants of the REER. The study also reveals that there is misalignment from the equilibrium exchange rates at different time periods.

Keywords: Real effective exchange rate; actual REER; behavioral equilibrium exchange rate model; misalignment; Azerbaijan (search for similar items in EconPapers)
JEL-codes: F31 F41 (search for similar items in EconPapers)
Pages: 16 pages
Date: 2019-05-06
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Persistent link: https://EconPapers.repec.org/RePEc:aze:wpaper:1902

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