Equilibrium exchange rates in transition countries: Evidence from dynamic heterogeneous panel models |
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| Institution: | 1. Department of Economics, Sogang University, C.P.O. Box 1142, Seoul 100-611, South Korea;2. Bank of Finland, Institute for Economies in Transition (BOFIT), P.O. Box 160, Helsinki FIN-00101, Finland;1. Vinod Gupta School of Management, Indian Institute of Technology, Kharagpur, WB 721302, India;2. Department of Economics, Trent University, Peterborough, Ontario K9J 7B8, Canada;3. Department of Economics, University of Wisconsin-Parkside, Kenosha, Wisconsin 53144, USA;4. Department of Financial Management, University of Pretoria, Pretoria 0028, South Africa;5. Department of Economics, University of Melbourne, Victoria 3053, Australia;6. Department of Economics, University of Cambridge, Cambridge CB3 9DD, UK;1. Ghana Institute of Management and Public Administration, GIMPA School of Public Service and Governance, Accra, Ghana;2. Ghana Institute of Management and Public Administration, Business School, Accra, Ghana |
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| Abstract: | We use a dynamic heterogeneous panel model to estimate real equilibrium exchange rates for advanced transition countries. Our method is based on out-of-sample estimations from middle-income and high-income countries, and we use a Pooled Mean Group estimator. We find that exchange rates in the Czech Republic, Poland, and Slovakia have converged in recent years with real equilibrium exchange rates expressed in the US dollars. Yet, in 2002, they were overvalued in Hungary but undervalued in Slovenia. We also find that the currencies of the transition countries studied, except Slovenia, were overvalued in 2002 if real effective exchange rates were used. In particular, the Hungarian currency was found to have the largest extent of misalignment. |
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