Naslov
Measuring Real Exchange Rate Misalignment in Croatia: Cointegration Approach

Autori
Palić, Irena ; Dumičić, Ksenija ; Šprajaček, Petra

Izvornik
Croatian operational research review (1848-0225) 5 (2014), 2; 135-148

Vrsta, podvrsta i kategorija rada
Radovi u časopisima, članak, znanstveni

Ključne riječi
Cointegration approach ; Exchange rate equilibrium ; Currency misalignment ; Adjustment speed ; Hodrick-Prescott filtering

Sažetak
There has been an extensive debate about the adequacy of the exchange rate level in Croatia since the implementation of Stabilization program in October 1993 by the Croatian government. The question whether Croatian kuna is overvalued is one of the dominant issues related to conducting monetary policy in Croatia. On the one hand, the monetary authorities claim that it is very important to maintain the stability of the exchange rate in Croatia in order to maintain the price stability, which is the primary objective of Croatian monetary policy. However, on the other hand, the overvalued local currency could have a negative effect on the economic activity primarily through its unfavorable effect on the competitiveness of domestic products on the global market. Measuring overvaluation or undervaluation of exchange rate is quite controversial tasks for economic analysts from the methodological point of view. Accordingly, the purpose of this paper is to determine whether the real exchange rate in Croatia is misaligned. In order to define misalignment, an analytical model that could be used for determination of the equilibrium real exchange rate (ERER) is provided in the first place. The ERER is computed using the cointegration approach whereat the real exchange rate and its fundamentals are included in the cointegration analysis. It is assumed that misalignment could arise due to inappropriate macroeconomic policies. Once this concept is defined, in the second step the corresponding misalignment is computed as a deviation of the real exchange rate from its equilibrium level. The econometric methodology used in this paper refers to stationarity and cointegration tests. After testing the stationarity of time series, the test for cointegration between real exchange rate and the underlying macroeconomic fundamentals is conducted. Finally, the long-run parameters are estimated and afterwards used for computing the real exchanger rate and the corresponding misalignment. The determination of RER misalignment could be very useful for economic policymakers as the theoretical and empirical literature suggest that the RER misalignment is one of the key indicators in identifying a country’s economic vulnerability. In other words, the persistent RER misalignment can be considered as an indicator of potential crisis with adverse effects on economic activity. According to that, the policy makers should take into account the RER misalignment for future studies of domestic economic developments.

Izvorni jezik
Engleski

Znanstvena područja
Ekonomija

Napomena
Ovaj rad je u potpunosti podržan od strane Hrvatske zaklade za znanost kao dio znanstvenog projekta „Statistical Modelling for Response to Crisis and Economic Growth in Western Balkan Countries“ (STRENGTHS) ; Broj projekta:HRZZ-IP-2013-11-9402 ; Voditeljica: prof. dr. sc. Ksenija Dumičić

POVEZANOST RADA