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N° 2003-05 |
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| June 2003 |
Estimating the Fundamental Equilibrium
Exchange Rate of Central and Eastern European Countries
The EMU Enlargement Perspective |
Balazs Egert
Amina Lahrèche-Révil |
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| This paper offers an empirical analysis of
the real equilibrium exchange rate for 5 Central and Eastern European (CEE) countries
in the prospect of their future E(M)U entry. The fundamental equilibrium exchange
rate is estimated using a new empirical approach, where the internal and external
balances are estimated simultaneously with the real exchange rate, and their long-term
values are used to compute the equilibrium exchange rate. Macro-economic equilibrium
conditions allow to detect misalignments in the (effective) real exchange rates.
These estimated misalignments are thereafter used to derive nominal equilibrium
exchange rates against the euro. Finally, the sustainability of an ERM-II- type
exchange rate regime is investigated on ex-post data from an EMU enlargement prospect
and the credibility problem of fixing the CEE countries' currency vis-à-vis
the single European currency is analysed. |
Abstract |
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| Equilibrium exchange rates, EU enlargement,
econometric analysis, EMU, transition economies |
Keywords |
| C31, F31, F33 |
JEL classification |
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