Publication detail

Real Equilibrium Exchange Rates: To What Extent Applicable for Setting Central Parity?

Author(s): prof. Roman Horváth Ph.D.,
Type: IES Working Papers
Year: 2005
Number: 75
Published in: IES FSV UK Working Papers Series No. 75 (also in Prague Social Science Studies, EC-002/2005)
Publishing place: Prague
Keywords: equilibrium exchange rate, monetary policy, ERM II
JEL codes: E5, F4
Suggested Citation:
Grants: IES Research Framework Institutional task (2005-2011) Integration of the Czech economy into European union and its development
Abstract: The objective of this paper is twofold. First, we provide an introduction on estimation and methodology of the real equilibrium exchange rate. Second, we discuss to what extent are these estimates applicable for setting the central parity. Given the uncertainty surrounding the estimates, they are informative in the sign rather than the size of the misalignment of exchange rate, but may serve as useful consistency checks for the decision about setting the central parity. We argue that policy makers shall consider the estimates in their decision-making only if the real exchange rate is substantially misaligned (i.e. more than 10% as a rule of thumb).
Downloadable: WP 2005_75 Horvath


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