Work detail

Equilibrium Exchange Rates and Exchange Rate Misalignments in the Visegrad Group

Author: Mgr. Patricia Pavlikova
Year: 2019 - summer
Leaders: doc. Mgr. Tomáš Holub Ph.D.
Consultants:
Work type: CSF - Corporate Strategy and Finance
Masters
Language: English
Pages: 126
Awards and prizes:
Link:
Abstract: The main objective of this diploma thesis is to estimate equilibrium exchange rates for four
countries forming Visegrad Group partnership and to evaluate whether their exchange
rates are overvalued, undervalued or in equilibrium with their economic development and
with market. We focused on two widely used models, Behavioral Equilibrium Exchange
Rate Model and Fundamental Equilibrium Exchange Rate Model and estimated several
alternations of each model. Results where then compared and we derived implications for
each country. We could clearly see that each country is developing differently in terms of
equilibrium exchange rates. While the exchange rate of Czech Republic seems to oscillate
steadily around its equilibrium value, we spotted higher misalignments for the rest of
the country. Also, we saw that Hungary is on path of constant depreciation, which is
related with economic issues country is struggling. Polish Zloty is characterized by overall
high amplitude of movements of its exchange rate and by frequent undervaluation of the
currency, implying favorable development of the economy, taking into consideration the
constant growth and productivity gains. For Slovakia we saw that despite its dynamic
growth most of the models were showing that the currency was overvalued. We observed
also the development of equilibrium exchange rate even after adopting common euro
currency in order to see the macroeconomic implications as the real exchange rate was
just nominal exchange rate deflated by price ratios.

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CRIF
McKinsey
Patria Finance