Estimating the Equilibrium Real Exchange Rate: An Application to Finland

Author/Editor:

Tarhan Feyzioglu

Publication Date:

September 1, 1997

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

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.

Series:

Working Paper No. 1997/109

Subject:

English

Publication Date:

September 1, 1997

ISBN/ISSN:

9781451853179/1018-5941

Stock No:

WPIEA1091997

Pages:

24

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