Title: Equilibrium real exchange rate in Macedonia

Authors: Goran Petrevski

Addresses: Faculty of Economics, Ss. Cyril and Methodius University, Krste Misirkov Blvd. b.b., 1000 Skopje, Macedonia

Abstract: This paper provides for an empirical analysis of real exchange rates in Macedonia. The empirical model specifies the equilibrium real exchange rate as a function of the fundamental factors. Then, using the coefficients of the empirical model, the deviation of the actual real exchange rate from its equilibrium values is estimated. Although the estimates differ with the chosen method for approximation of the fundamentals, it seems that the overvaluation of the real exchange rate does not pose serious problems for the policy makers in Macedonia. Finally, the estimation of the short-run empirical model implies slow adjustment of the actual real exchange rate to the long-run equilibrium level.

Keywords: real exchange rates; equilibrium; misalignment; exchange rate policy; transition economies; Macedonia; econometric modelling; co-integration; error correction models; moving averages; Hodrick-Prescott filter.

DOI: 10.1504/IJMEF.2007.016022

International Journal of Monetary Economics and Finance, 2007 Vol.1 No.1, pp.5 - 17

Published online: 02 Dec 2007 *

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