Equilibrium real exchange rate for the Slovak koruna

In this paper a PPI based real effective equilibrium exchange rate for the Slovak koruna is estimated using BEER method. This method rests upon finding a long-term relationship between a real exchange rate and other appropriately chosen economic fundamentals. Such exchange rate is called a behavioural equilibrium exchange rate (BEER). Knowledge of equilibrium exchange rate shed light on current standing of the Slovak koruna vis-a-vis other currencies which helps the central bank in forming appropriate monetary policies. Moreover, given that observed relationship between equilibrium exchange rate and other fundamentals will be preserved, BEER method allows estimating its future path. This can be used in determining the value of a central parity of the Slovak koruna vis-a-vis euro when Slovakia enters ERM II.