Towards the Estimation of Equilibrium Exchange Rates for CEE Acceding Countries: Methodological Issues and a Panel Cointegration Perspective

By Francisco Maeso-Fernández, C. Osbat, Bernd Schnatz. Social Science Research Network, 2004

136 citations recorded by the source corpus.

This paper provides a discussion of methodological issues relating to the estimation of the long-run relationship between exchange rates and fundamentals for Central and Eastern European acceding countries, focusing on the so-called behavioural equilibrium exchange rate (BEER) approach. Given the limited availability and reliability of data as well as the rapid structural change acceding countries have been undergoing in the transition phase, this paper identifies several pitfalls in following the most straightforward and standard econometric procedures. As an alternative, it looks at the merits of a two-step strategy that consists of estimating the relationship between exchange rates and economic fundamentals in a panel cointegration setting - using a sample which excludes acceding countries - and then "extrapolating" the estimated relationships to the latter. While focusing on the first step of such a strategy, the paper also delves into discussing technical aspects underlying the "extrapolation" stage. As a result, the paper endows the reader with the methodological and empirical ingredients for computing equilibrium exchange rates for acceding countries, providing estimates for the long-run coefficients between real exchange rates and economic fundamentals and a discussion of how to apply these results to acceding countries data. JEL Classification: C23, F31

Subfields: Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/3ad1b160678e0a2c5d717bd81dbec5a92539b714

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Citations in the corpus

Trade Integration of Central and Eastern European Countries: Lessons from a Gravity Model (2005, unknown): “21 For a similar discussion of the effect of the transition process on the estimation of equilibrium exchange rates for these countries, see Maeso-Fernandez et al. (2004).”
Exchange Rate Variability, Pressures and Optimum Currency Area Criteria: Implications for the Central and Eastern European Countries (2005, unknown): “We predict the exchange rate volatility and pressures by what is called ‘out-of-sample approach’ in the equilibrium exchange rate literature (see Halpern and Wyplosz, 1997 or Maeso-Fernandez et al., 2004).”
Capital Flows, Exchange Rate Flexibility, and the Real Exchange Rate (2012, background): “…EXCHANGE RATE REGIME, AND THE REAL EXCHANGE RATE Edwards (1989, 1994), Williamson (1994), Hinkle and Montiel (1999), Edwards and Savastano (2000), and Maeso-Fernandez, Osbat, and Schnatz (2004) provide comprehensive surveys of the extensive literature on determinants of the real exchange rate.”