Equilibrium Exchange Rates of Central and Eastern European Countries on the Road to the European Monetary Union

The upcoming enlargement of the European Monetary Union involves the selection of appropriate reference rates at which the exchange rates of the accession countries will be fixed against the euro in order to avoid economic distortions as consequences of serious exchange rate misalignments. Determination of an exchange rate that is neither undervalued nor overvalued raises the issue of equilibrium exchange rates. Based on time series as well as panel estimation techniques three different concepts BEER, PEER and PPP are applied in this study to calculate equilibrium exchange rate levels for ten Central and Eastern European countries. The results indicate significant real misalignments in a number of accession countries.

Auteur
The Author: Jörg Rahn studied mathematics and economics at the University of Hamburg and for one year at the Rhodes University in Grahamstown (South Africa). From 2000 to 2004 he worked as research assistant at the Institute of Quantitative Macroeconomics at the University of Hamburg. During this time he published papers on the efficiency of the East German economy and the exchange rate of the Chinese renminbi. Currently he is working for the German Council of Economic Experts (Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung).

Contenu

Contents: Developments of exchange rates and exchange rate regimes in ten Central and Eastern European Countries - Concepts to calculate equilibrium exchange rates - Appliance of three methods based on time series as well as panel estimation techniques: BEER, PEER and PPP - Determination of misalignments in real effective terms as well as in nominal terms against the euro.