SUSTAINABLE EXCHANGE RATES WHEN TRADE WINDS ARE PLENTIFUL

Estimation and simulation of sustainable real exchange rates in a sample of EU member countries find vulnerabilities connected to the adoption of the euro if the rate vis-à-vis the euro were to be fixed with weak fundamentals and inappropriate policies. Sample countries have benefited from dramatic...

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Bibliographic Details
Published in:National Institute economic review 2008-04, Vol.204 (204), p.98-107
Main Authors: Babecky, Jan, Bulir, Ales, Smidkova, Katerina
Format: Article
Language:English
Subjects:
Balance of trade
Banking industry
Economic models
Estimates
Estimation
Euro
External debt
Forecasts and trends
Foreign direct investments
Foreign exchange
Foreign exchange rates
Foreign investment
Foreign investments
Gross domestic product
Imports
Inappropriateness
International financial institutions
International trade
Macroeconomics
Optimism
Prices and rates
Projections
Purchasing power parity
Real exchange rates
Simulation
Studies
Sustainability
Sustainable economies
Trade
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Summary:Estimation and simulation of sustainable real exchange rates in a sample of EU member countries find vulnerabilities connected to the adoption of the euro if the rate vis-à-vis the euro were to be fixed with weak fundamentals and inappropriate policies. Sample countries have benefited from dramatic improvements in their external positions, in part driven by inflows of foreign direct investment. As a result, exchange rate misalignments have narrowed in most countries and, looking ahead, are expected to narrow further. These results are conditional, however, on optimistic projections with respect to world import demand and foreign direct investment inflows.
ISSN:0027-9501
1741-3036
DOI:10.1177/00279501082040011101