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Original scientific paper
https://doi.org/10.17535/crorr.2014.0003

Measuring real exchange rate misalignment in Croatia: cointegration approach

Irena Palić   ORCID icon orcid.org/0000-0002-7525-0640 ; Faculty of Economics and Business, University of Zagreb
Ksenija Dumičić   ORCID icon orcid.org/0000-0001-7131-9455 ; Faculty of Economics and Business, University of Zagreb
Petra Šprajaček

Fulltext: english, pdf (194 KB) pages 135-148 downloads: 728* cite
APA 6th Edition
Palić, I., Dumičić, K. & Šprajaček, P. (2014). Measuring real exchange rate misalignment in Croatia: cointegration approach. Croatian Operational Research Review, 5 (2), 135-148. https://doi.org/10.17535/crorr.2014.0003
MLA 8th Edition
Palić, Irena, et al. "Measuring real exchange rate misalignment in Croatia: cointegration approach." Croatian Operational Research Review, vol. 5, no. 2, 2014, pp. 135-148. https://doi.org/10.17535/crorr.2014.0003. Accessed 14 Dec. 2019.
Chicago 17th Edition
Palić, Irena, Ksenija Dumičić and Petra Šprajaček. "Measuring real exchange rate misalignment in Croatia: cointegration approach." Croatian Operational Research Review 5, no. 2 (2014): 135-148. https://doi.org/10.17535/crorr.2014.0003
Harvard
Palić, I., Dumičić, K., and Šprajaček, P. (2014). 'Measuring real exchange rate misalignment in Croatia: cointegration approach', Croatian Operational Research Review, 5(2), pp. 135-148. https://doi.org/10.17535/crorr.2014.0003
Vancouver
Palić I, Dumičić K, Šprajaček P. Measuring real exchange rate misalignment in Croatia: cointegration approach. Croatian Operational Research Review [Internet]. 2014 [cited 2019 December 14];5(2):135-148. https://doi.org/10.17535/crorr.2014.0003
IEEE
I. Palić, K. Dumičić and P. Šprajaček, "Measuring real exchange rate misalignment in Croatia: cointegration approach", Croatian Operational Research Review, vol.5, no. 2, pp. 135-148, 2014. [Online]. https://doi.org/10.17535/crorr.2014.0003

Abstracts
The purpose of the paper is to analyze misalignment of the real exchange rate in Croatia. The misalignment analysis is conducted using the permanent equilibrium exchange rate approach. The equilibrium real exchange rate is computed using the cointegration approach whereby the real exchange rate and its fundamentals, namely terms of trade, net foreign assets and the ratio of prices of tradables to non-tradables are included in cointegration analysis. The Hodrick and Prescott filter is used to obtain permanent values of the equilibrium real exchange rate. The real exchange rate misalignment is computed as the deviation of the RER from its permanent equilibrium level. Four overvaluation periods and three undervaluation periods are recorded in Croatia in the observed period. Overvaluation periods are more often and of longer duration than undervaluation periods. However, the real exchange rate does not deviate largely from its estimated equilibrium value in the observed period, and it is neither overvalued nor undervalued constantly, but the periods alternate. Considering the results of the analysis, together with the empirical characteristics of Croatian economy, namely the high foreign currency indebtedness, highly euroized economy and underdeveloped export oriented sector, the depreciation of the real exchange rate is not recommended to economic policy makers and the current Croatian exchange rate policy is appropriate.

Keywords
cointegration approach; exchange rate equilibrium; currency misalignment; adjustment speed; Hodrick-Prescott filtering

Hrčak ID: 133692

URI
https://hrcak.srce.hr/133692

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