A Semi-Structural Method to Estimate the NATREX for a Small Open Economy
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A Semi-Structural Method to Estimate the NATREX for a Small Open Economy
Applied Economics Quarterly, Vol. 54 (2008), Iss. 2 : pp. 73–93
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1WHU - Otto Beisheim School of Management, Department of Economics, Vallendar, Germany.
Cited By
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Are the Real Exchange Rates of the New EU Member Countries in Line with Fundamentals? – Implications of the NATREX Approach
Frenkel, Michael
Koske, Isabell
Jahrbücher für Nationalökonomie und Statistik, Vol. 232 (2012), Iss. 2 P.129
https://doi.org/10.1515/jbnst-2012-0204 [Citations: 0]
Abstract
This paper lays out a simple semi-structural method to estimate a small country version of the Natural Real Exchange Rate approach. Applying the model to the Finnish economy suggests that it works quite well in empirical applications. The predictions of the model regarding the impact of exogenous variables are generally confirmed by the data. Moreover, the implied exchange rate misalignments are consistent with previous research. The paper also highlights the benefits and drawbacks of the model both from a theoretical and an empirical perspective and compares it to other equilibrium real exchange rate approaches commonly employed in empirical research.