Heterogeneous common factor approach to examination of real effective exchange rate determinants Online publication date: Fri, 24-Jan-2020
by Mirjana Čizmović; Srdjan Redzepagic; Damien Bazin
International Journal of Economic Policy in Emerging Economies (IJEPEE), Vol. 12, No. 4, 2019
Abstract: Using a dataset of the Eastern European countries over the 1995–2015 period, we examine the determinants of the real effective exchange rates and their equilibrium path. In an attempt to address the econometric estimation uncertainty, we employ the recent panel time series estimators that deal with the panel with heterogeneous coefficients and can accommodate potential endogeneity and cross-sectional dependence. Using common factor representation of the equilibrium exchange rate, we manage to separately analyse the dynamics and evaluation of a common dynamic process that represents similar factors which drive the real effective exchange rate, with a differential impact across countries. After confirming the robustness of productivity and the terms of trade influence on the real exchange, we provide evidence that the relation productivity – the real effective exchange rate is nonlinear and turns negative after a certain threshold.
Existing subscribers:
Go to Inderscience Online Journals to access the Full Text of this article.
If you are not a subscriber and you just want to read the full contents of this article, buy online access here.Complimentary Subscribers, Editors or Members of the Editorial Board of the International Journal of Economic Policy in Emerging Economies (IJEPEE):
Login with your Inderscience username and password:
Want to subscribe?
A subscription gives you complete access to all articles in the current issue, as well as to all articles in the previous three years (where applicable). See our Orders page to subscribe.
If you still need assistance, please email subs@inderscience.com
Our Blog 
Follow us on Twitter 
Visit us on Facebook