Estimating the Equilibrium Real Exchange Rate [electronic resource] : An Application to Finland / Tarhan Feyzioglu.
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TextSeries: IMF Working Papers; Working Paper ; No. 97/109Publication details: Washington, D.C. : International Monetary Fund, 1997Description: 1 online resource (24 p.)ISBN: 1451853173 :ISSN: 1018-5941Subject(s): Cointegration | Equilibrium Exchange Rate | Exchange Rate | Exchange Rates | Real Exchange Rate | FinlandAdditional physical formats: Print Version:: Estimating the Equilibrium Real Exchange Rate : An Application to FinlandOnline resources: IMF e-Library | IMF Book Store Abstract: An equilibrium exchange rate is here defined as the level that is consistent with simultaneous internal and external balances as specified in Montiel (1996). Exogenous "fundamental" variables determining these balances are identified. Along the lines of Edwards (1994), a reduced form is estimated with the cointegration technique for Finland for the period 1975-95. The estimation produced a reasonable set of equilibrium exchange rates that appreciate with positive shocks to the terms of trade, world real interest rates, and the productivity differential between Finland and its trading partners.
An equilibrium exchange rate is here defined as the level that is consistent with simultaneous internal and external balances as specified in Montiel (1996). Exogenous "fundamental" variables determining these balances are identified. Along the lines of Edwards (1994), a reduced form is estimated with the cointegration technique for Finland for the period 1975-95. The estimation produced a reasonable set of equilibrium exchange rates that appreciate with positive shocks to the terms of trade, world real interest rates, and the productivity differential between Finland and its trading partners.
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