Equilibrium Exchange Rates in Transition Economies

Exchange rates in transition economies undergo early depreciation followed by continuing real appreciation. The paper documents and interprets this stylized fact. It provides estimates of the real equilibrium exchange rate based on a sample of 80 countries, and estimates well the dynamics of the real exchange rate in the early transition phase. The results suggest that the continuing real appreciation corresponds to a combination of a return to equilibrium following an initial overshooting, and of real equilibrium appreciation.