The behavioural equilibrium exchange rate (BEER) model of the Czech koruna is derived in this paper and estimated by three methods suitable for non-stationary time series. The potential determinants of the real equilibrium exchange rate considered are the productivity differential, the interest rate differential, the terms of trade, net foreign direct investment, net foreign assets, government consumption and the degree of openness. We find that the Czech koruna was on average undervalued over the period 1994 to 2004 by about 7 percent with respect to the estimated BEER. The significant determinants of the equilibrium exchange rate of the Czech koruna appear to be the productivity differential, the real interest rate differential, the terms of trade and net foreign direct investment.
Keywords: Czech Republic, equilibrium exchange rate modelling, ERM II, exchange rate misalignments, time-series analysis
Issued: December 2005
Published as:
- "The Behavioral Equilibrium Exchange Rate of the Czech Koruna", Transition Studies Review, 14 (1), pp. 105-121, 2007
- "Transitional appreciation of equilibrium exchange rates and the ERM II", Transition Studies Review, 15 (1), pp. 95-110, 2008
Download CNB WP No. 5/2005 (pdf, 361 kB)