Econometric Analysis of the Hungarian BEER

Absztrakt (kivonat)

In this paper the Hungarian Forint’s real effective exchange rate is analyzed during the period 1995:Q1 to 2009:Q3 within the Behavioural Equilibrium Exchange Rate (BEER) framework, which has been intensively used in recent empirical studies (Alberola, 2008 and Babetskii and Égert, 2005). The econometric method applied is Johansen cointegration, which helps estimate the equilibrium real effective exchange rate of the HUF against its main trading partners’ currencies. The fundamentals used for modelling are relative productivity differential and the cumulated stock of Foreign Direct Investments relative to GDP. The resulting series is decomposed into a permanent and transitory component using Hodrick-Prescott filter, and the difference between observed values and the former series is interpreted as real misalignment. This allows us to make statements about three significant real depreciations in the last fifteen years, and conclude that they are not justified by our model. Using forecasts of the fundamentals, the model is used to estimate future equilibrium real effective exchange rate, which is backward transformed to obtain the HUF’s nominal equilibrium exchange rate against the EUR for the hypothetic ERM II accession date of 1 January 2013.