engleski

Exchange rate misalignment - a case of Croatia

Exchange rate misalignment refers to a situation in which a county’ s actual real (effective) exchange rate deviates from some notion of an implicit equilibrium real exchange rate. Persistent exchange rate misalignments can generate severe macroeconomic disequilibrium which usually leads to costly external imbalances corrections. For that reason it is important to pay attention to equilibrium exchange rate and hence our question is whether Croatian exchange rate is misaligned with economic fundamentals. In this paper we are investigating whether our own calculation of real effective exchange rate is misaligned using behavioural equilibrium exchange rate approach. More precisely, the econometric analysis builds on data and derives behavioural equilibrium exchange rate using cointegration analysis with the aim of finding which variables are significant on influencing real effective exchange rate. The resulting model would show whether Croatian Kuna was overvalued or undervalued in the analysed period.

real effective exchange rate; misalignment; behavioural equilibrium exchange rate; Croatian Kuna

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