Equilibrium Real Exchange Rate: A Case of the Czech Republic
|Author:||PhDr. Pavel Vacek|
|Year:||2003 - summer|
|Leaders:|| doc. Ing. Vladimír Benáček CSc.
|Work type:|| Doctoral
|Awards and prizes:|
|Abstract:||This thesis presents theory of equilibrium real exchange rate with emphasis on the behavioral models. The primary objective of the thesis is to estimate the equilibrium real exchange rate of the Czech Republic and bring microeconomic evidence demonstrating to what extent firms that voiced their dissatisfaction with the appreciating Czech crown publicly are in reality harmed or even endangered.
Johansen cointegration technique was implemented for identifying long-run determinants of Czech real exchange rate and tis equilibrium path. The main findings are that the real exchange rate of the Czech Republic is determined primarily by productivity, terms of trade and goverment expenditures. In particular productivity has considerable effect on real exchange rate. 1% increase in productivity leads almost to 4,4% real appreciation. Foreign direct investment and world real interest rate have secondary effects.
The Czech republic avoided serious exhange rate misalignments. My results do not support the findings of Frait and Komarek (2001) that the Czech crown before the currency crisis in May 19997 was overvalued in real terms. On the contrary, my results correspond to Halpen and Wyplosz (1998) who showed that during 1996-1997 the Czech crown was undervalued in real terms.
Case studies of the firms Texlen Linen and SkodaAuto give support to the so-called Inverse Balassa-Samuelson effect when real appreciation forces firms to increase their efficiency. The case studies suggest that it is not possible to trivialize the impact of the strong currency only on decreasing profits from exports as is often presented. Decreasing prices of imported materials, imported capital endowment and cheaper Euro loans have to be taken in consideration. Both companies examined in spite of big lost profits are not seriously endangered by strong Czech crown. This result cannot be however generalised on all exporters.