CAPITAL-ENHANCED EQUILIBRIUM EXCHANGE RATE IN THE PRESENCE OF STRUCTURAL BREAKS: EVIDENCE FROM THE VISEGRAD COUNTRIES

Authors

  • MINOAS KOUKOURITAKIS

    1. University of Crete, Greece
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    • The author would like to thank the editor of the journal Dr George Bratsiotis, Dr Nikolaos Giannellis and an anonymous referee for their constructive suggestions and helpful comments that improved the quality of the paper. Of course, the usual caveat applies.


  • Manuscript received 10.8.09; final version received 31.1.11.

Abstract

In this paper I test the validity of the capital-enhanced equilibrium exchange rate (CHEER) approach for the four Visegrad new EU countries. Recent unit root and cointegration techniques with structural breaks in the data have been used. The CHEER approach is empirically validated only for the Czech Republic, while for Poland and Slovakia there is evidence of plausible economic relationships between the nominal exchange rate and each of the price and interest rate differentials. In contrast, such a relationship cannot be identified for Hungary.

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