Bankarstvo (Jan 2024)
Movement of the real effective exchange rate of the convertible mark
Abstract
In the research, we evaluated the equilibrium real effective exchange rate of the convertible mark and identified a significant deviation of the real effective exchange rate of the convertible mark concerning the equilibrium level, especially during the period of the coronavirus pandemic and global inflation growth. During the period of globally high inflation, the main determinant of REER appreciation was the faster growth of BH price from foreign prices and slower growth of productivity in BH compared to the environment, and to a lesser extent the growth of the domestic real interest rate and changes in terms of exchange. In addition to these appreciation pressures, the impact of uncovered interest rate parity on the depreciation of REER was expressed, due to the extremely restrictive monetary policy of the ECB and the lower degree of restrictiveness of the monetary policy in BH, from the aspect of the level of foreign and domestic interest rates. The volatility of the REER deviation from the equilibrium REER is higher in crisis periods. The isolated determinants of REER of the convertible mark provide a good analytical basis for the creation of BH monetary policy and regulation of the banking sector.
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