Estimating the Equilibrium Real Exchange Rate: An Application to Finland
IMF Working Papers, September 1, 1997
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- Estimating the Equilibrium Real Exchange Rate: An Application to Finland
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Bibliographic details
- Authors: Tarhan Feyzioglu
- Published: September 1, 1997
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451853179.001
Definition and Conceptual Framework
- Equilibrium exchange rate defined as the level consistent with simultaneous internal and external balances as specified in Montiel (1996).
- Exogenous “fundamental” variables determining these balances are identified.
- Approach follows the reduced-form framework along the lines of Edwards (1994).
Data and Methodology
- Sample period: 1975-95.
- Estimation technique: cointegration applied to a reduced-form specification for Finland.
- Objective: estimate equilibrium real exchange rates consistent with identified fundamentals.
Key Findings
- The estimation produced a reasonable set of equilibrium exchange rates for Finland.
- The equilibrium real exchange rate appreciates with positive shocks to:
- the terms of trade,
- world real interest rates,
- the productivity differential between Finland and its trading partners.
Subjects and Keywords
- Subject: Exchange rates, Financial services, Foreign exchange, International trade, Real effective exchange rates, Real exchange rates, Real interest rates, Terms of trade
- Keywords: appreciated exchange rate, Baltics, Cointegration, equilibrium exchange rate, equilibrium rate, excess demand, exchange rate, Exchange rates, Finland, goods output, nominal interest rate, productivity differential, Real effective exchange rates, real exchange rate, Real exchange rates, Real interest rates, sector result, Terms of trade, terms of trade shock, WP
Content in this bundle
- Estimating the Equilibrium Real Echange Rate: An Application to Finland - WP/97/109