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Estimating the Equilibrium Real Exchange Rate: An Application to Finland
Author:
Mr. Tarhan Feyzioglu
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Series:
IMF Working Papers
Volume/Issue:
Volume 1997: Issue 109
Language:
English
Publication Date:
01 Sep 1997
DOI:
https://doi.org/10.5089/9781451853179.001
ISBN:
9781451853179
ISSN:
1018-5941
Pages:
24
Keywords:
WP; exchange rate; equilibrium exchange rate; appreciated exchange rate; excess demand; productivity differential; real exchange rate; Cointegration; Finland; nominal interest rate; sector result; terms of trade shock; goods output; equilibrium rate; Real exchange rates; Exchange rates; Terms of trade; Real effective exchange rates; Real interest rates; Baltics
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IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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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.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund