A Semi-Structural Method to Estimate the NATREX for a Small Open Economy. The Case of Finland

Isabell Koske

Applied Economics Quarterly (formerly: Konjunkturpolitik), 2008, vol. 54, issue 2, 73-93

Abstract: This paper lays out a simple semi-structural method to estimate a small country version of the Natural Real Exchange Rate approach. Applying the model to the Finnish economy suggests that it works quite well in empirical applications. The predictions of the model regarding the impact of exogenous variables are generally confirmed by the data. Moreover, the implied exchange rate misalignments are consistent with previous research. The paper also highlights the benefits and drawbacks of the model both from a theoretical and an empirical perspective and compares it to other equilibrium real exchange rate approaches commonly employed in empirical research.

Keywords: Exchange Rate Models; Natural Real Exchange Rate Approach; Finland (search for similar items in EconPapers)
JEL-codes: C32 F31 (search for similar items in EconPapers)
Date: 2008
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