DP4809 Equilibrium Exchange Rates in Transition Economies: Taking Stock of the Issues

Author(s): Balázs Égert , László Halpern , Ronald MacDonald

Publication Date: December 2004

Keyword(s): equilibrium exchange rate , Purchasing Power Parity , Balassa-Samuelson effect , tradable prices , transition economies

JEL(s): C15 , E31 , F31 , O11 , P17

Programme Areas: Institutions and Economic Performance

Link to this Page: www.cepr.org/pubs/dps/DP4809.asp

In this Paper we present an overview of a number of issues relating to the equilibrium exchange rates of the new EU member states from Central and Eastern Europe. In particular, we present a critical overview of the various methods available for calculating equilibrium exchange rates and discuss how useful they are likely to be for the new member states. We then consider some methodological issues, relating to the implementation of an equilibrium exchange rate model for new member states, such as the speed with which equilibrium exchange rates change and issues of implementation. Finally, we present an overview of the various extant measures of equilibrium that have been calculated for the new member states.