Theoretical and empirical analysis of the debt-adjusted real exchange rate in selected transition economies during 1994 - 2001

Jan Frait () and Lubos Komarek ()

No 269459, Economic Research Papers from University of Warwick - Department of Economics

Abstract: This paper aims to enrich the debate on the overvaluation/undervaluation of the Czech koruna and the currencies of other selected transition economies by applying the concept of the debt-adjusted real exchange rate (DARER), thereby offering monetary policy makers another indicator for more responsive management of this important economic variable. The motivation for constructing DARER is the fact that many transition economies finance their long-term current account deficits with capital flows, which often leads to real overvaluation of their currencies. DARER can signal to the authorities that the real exchange rate is becoming unsustainable in the medium term and that if this signal is ignored, a currency crisis may ensue. The paper is in seven parts. The first three parts contain the theoretical underpinning of the concept. Part four defines newly proposed indicators of exchange rate overvaluation. Part five contains empirical DARER results for the Czech Republic. Part six and annex 1 to this work contain empirical DARER results for selected transition countries, including a brief description of those countries’ exchange rate histories. The final part examines the possibilities and limitations of the DARER concept in practice. The primary aim of this part, however, is to explain the information content of the real exchange rate as a very good warning signal of potential currency crisis.

Keywords: Agricultural and Food Policy; International Relations/Trade (search for similar items in EconPapers)
Pages: 34
Date: 2002-08-08
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
https://ageconsearch.umn.edu/record/269459/files/twerp646.pdf (application/pdf)
https://ageconsearch.umn.edu/record/269459/files/twerp646.pdf?subformat=pdfa (application/pdf)

Related works:
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:ags:uwarer:269459

DOI: 10.22004/ag.econ.269459

Access Statistics for this paper

More papers in Economic Research Papers from University of Warwick - Department of Economics
Bibliographic data for series maintained by AgEcon Search ().