Published in:William Davidson Institute Working Paper ; No. 781
Extent:
1 Online-Ressource (35 p)
Language:
Not determined
DOI:
10.2139/ssrn.770405
Identifier:
Origination:
Footnote:
Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments July 2005 erstellt
Description:
This paper investigates the equilibrium exchange rate of the Czech koruna using the reduced form equation of the stock-flow approach advocated, for instance, by Faruqee (1995) and Alberola and others (1999). We investigate whether or not the observed real exchange rate of the Czech koruna is close to its equilibrium value over the period from 1993 to 2004. Our empirical approach is tantamount to the Behavioral Equilibrium Exchange Rate (BEER) popularized by MacDonald (1997) and Clark and MacDonald (1998) in that the Czech real exchange rate vis-a-vis the euro is regressed on the dual productivity differential and the net foreign assets position, based on which actual and total misalignment figures are derived in a time series context. In other words, we check the quality of the Czech BEER. We also study the impact of a possible initial undervaluation on the estimated equilibrium exchange rate. Employing monthly time series from 1993:M1 to 2004:M9 and applying several alternative cointegration techniques, we identify a period of an overvaluation in 1997 and in 1999, an increasing overvaluation till 2002, an undervaluation in 2003 and a correction towards equilibrium in the second half of 2004