The Real Equilibrium Exchange Rate of the Czech Koruna – the BEER Approach

Filip Pastucha

The Real Equilibrium Exchange Rate of the Czech Koruna – the BEER Approach

Číslo: 3/2024
Periodikum: Statistika
DOI: 10.54694/stat.2023.50

Klíčová slova: Equilibrium exchange rate, Czech Koruna, exchange rate misalignments, cointegration, error correction model

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Anotace: The aim of this paper is to develop a model of the real equilibrium CZK/EUR exchange rate with all relevant explanatory variables. Emphasis will be placed on examining the longest possible time horizon, with a period of real convergence, but also economic stagnation. The model is based on the theoretical BEER approach using a cointegration or error correction model that distinguishes between short-term and long-term relationships. The results show that the Czech koruna strengthens when the productivity differential, terms of trade differential or gross fixed capital formation increase, while the koruna weakens when the VIX index representing global risk aversion increases. For the real interest rate differential, the hypothesis that the koruna strengthens in the short run during the improvement but weakens in the long run probably due to the country's risk premium, was confirmed. Moreover, it turned out that the start of the European Central Bank's quantitative easing led to strengthening of the Czech koruna, while the start of the CNB's foreign exchange interventions in 2013 led to weakening of the Czech koruna.