Projekty badawcze Część VII

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1 Projeky badawcze Część VII

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3 Projeky badawcze Część VII

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5 Spis reści Wprowadzenie Informacje dodakowe Informacje o auorach projeków J. Bęza-Bojanowska, R. MacDonald The Behavioural Zloy/Euro Equilirium Exchange Rae M. Blaszkiewicz-Schwarzman Real Exchange Rae Volailiy: A Measure of Real Convergence in he Cenral and Easern European Euro Area Accession Counries M. Bukowski, G. Koloch, P. Lewandowski Adapacyjność gospodarki polskiej do szoków makroekonomicznych G. Grabek, B. Kłos Wybrane skuki przysąpienia małej owarej gospodarki do Unii Waluowej

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7 Wprowadzenie Prace nad Raporem na ema pełnego uczesnicwa Rzeczypospoliej Polskiej w III eapie Unii Gospodarczej i Waluowej prowadzone były na zasadach owarej i przejrzysej komunikacji i konsulacji z parnerami społecznymi, organizacjami pracodawców i pracobiorców, ośrodkami akademickimi, insyucjami finansowymi, organizacjami międzynarodowymi i insyucjami adminisracji publicznej, a akże we współpracy z innymi komórkami organizacyjnymi Narodowego Banku Polskiego oraz Radą Poliyki Pieniężnej. Przyjęcie powyższych zasad wynikało z przekonania, że wykorzysanie wiedzy i doświadczenia różnych środowisk oraz dorobku analiycznego pozosałych deparamenów NBP zapewni osiągnięcie wysokiego poziomu meryorycznego Raporu i pozwoli zbliżyć się do konsensusu w kwesii przyjęcia opymalnej ścieżki inegracji Polski ze srefą euro. Inencją przyjęcia ych zasad była akże chęć osiągnięcia wysokiego sopnia obiekywności Raporu. W ramach prac nad Raporem, z inicjaywy NBP, uruchomiono w ośrodkach akademickich i insyuach naukowych zlokalizowanych na erenie całego kraju, Miniserswie Finansów, Miniserswie Gospodarki, a akże deparamenach meryorycznych NBP proces badawczy poświęcony prakycznym i eoreycznym aspekom inegracji Polski ze srefą euro. Prace badawcze prowadzono w oparciu o rzy zasady: i) owarości i przejrzysości, ii) poszanowania własności inelekualnej, iii) anonimowej recenzji. Efekem blisko dwunasomiesięcznej pracy wybinych polskich naukowców jes zbiór 47 projeków badawczych, opublikowanych w formie 9 książek pod wspólnym yułem Projeky badawcze. Narodowy Bank Polski pragnie złożyć wyrazy podziękowania wszyskim naukowcom, kórzy wnieśli wkład w opracowanie niniejszej publikacji. Informacje dodakowe Publikacja Projeky badawcze o zbiór 47 projeków badawczych, kóra z uwagi na znaczną objęość wszyskich projeków (ponad 25 sron maszynopisu), zosała podzielona na 9 części. Jako kryerium przyporządkowania projeku badawczego do jednej z części przyjęo: po pierwsze forma opracowania zn. użyy program edyorski (Microsof Office Word lub LATEX),

8 po drugie nazwisko auora, układając projeky w porządku alfabeycznym, według nazwisk auorów. Części I VI publikacji zawierają projeky badawcze przygoowane przy użyciu programu Microsof Office Word, części VII IX przy zasosowaniu programu LATEX. Część VII publikacji obejmuje czery projeky badawcze zrealizowane zarówno przez pracowników NBP (Biura ds. Inegracji ze Srefą Euro, Insyuu Ekonomicznego), jak również eksperów zewnęrznych współpracujących z NBP: pracowników Universiy of Glasgow, Naional Universiy of Ireland oraz Insyuu Badań Srukuralnych. Informacje o auorach projeków Joanna Bęza-Bojanowska Magiser ekonomii, Uniwersye Mikołaja Kopernika w Toruniu. W laach 23-27: sudia dokoranckie, Kolegium Analiz Ekonomicznych, Szkoła Główna Handlowa, oworzony przewód dokorski dla pracy p.: Zasosowanie modeli kursu równowagi do analizy kursu złoy/euro. W laach 2-27 pracownik Miniserswa Finansów, Deparamen Poliyki Finansowej, Analiz i Saysyki, Wydział Poliyki Pieniężnej, specjalizacja: inegracja Polski ze srefą euro oraz poliyka pieniężna i waluowa. W laach członek Międzyresorowej Grupy Roboczej MF i NBP ds. Inegracji Polski z Unią Gospodarczą i Waluową. Od grudnia 27 r. kieruje pracami zespołu Badań i Analiz Krajowych w Biurze ds. Inegracji ze Srefa Euro NBP. Do października 28 r. była członkiem zespołu kierującego pracami nad Raporem na ema pełnego uczesnicwa Rzeczypospoliej Polskiej w III eapie UGW. W ym czasie koordynowała proces badawczy owarzyszący przygoowywaniu Raporu. Współauorka raporu przygoowanego w 25 roku w Miniserswie Finansów p. Inegracja Polski ze srefą euro: uwarunkowania członkoswa i sraegia zarządzania procesem. Auorka publikacji n. kursu waluowego równowagi. Monika Błaszkiewicz-Schwarzman Absolwenka Wydziałów Ekonomii Universiy of Sussex (2) i Uniwersyeu Warszawskiego (2) oraz dokoranka na Wydziale Ekonomii Naional Universiy of Ireland, Maynooh (NUIM). Jej zaineresowania naukowe koncenrują się na zagadnieniach z dziedziny makroekonomii i finansów międzynarodowych oraz ekonomerii sosowanej. Swoje doświadczenie zawodowe zdobywała pracując jako krókoerminowy konsulan w Miniserswie Finansów RP (26), krókoerminowy konsulan w Banku Świaowym (24), oraz na sanowisku ekonomisy w Deparamencie Poliyki Finansowej, Analiz i Saysyki w Miniserswie Finansów RP (2-22). Od 2 roku, Monika Błaszkiewicz-Schwarzman współpracuje z Fundacją Naukową CASE.

9 Dr Maciej Bukowski Dokor nauk ekonomicznych, adiunk w Szkole Głównej Handlowej w Warszawie (Kaedra Ekonomii I), prezes zarządu Fundacji Naukowej Insyu Badań Srukuralnych, członek Zespołu Doradców Sraegicznych Premiera RP. W przeszłości dyrekor deparamenu analiz w Miniserswie Gospodarki i Pracy i współauor Planu Racjonalizacji Wydaków Publicznych - zw. Planu Hausnera. W pracy naukowej zajmuje się eorią makroekonomii, finansami publicznymi i ekonomią pracy. Współauor wielu srukuralnych modeli ekonomicznych klasy CGE i DSGE, a akże modelowych analiz wpływu inerwencji publicznych na gospodarkę. Redakor naukowy i współauor serii Zarudnienie w Polsce i wielu innych naukowych wydawnicw książkowych. Grzegorz Grabek Pracownik Insyuu Ekonomicznego NBP, współauor projeku badawczego na ema cech mechanizmu ransmisji monearnej w Polsce i srefie euro oraz skuków przysąpienia małej, owarej gospodarki do Unii Waluowej. Grzegorz Koloch Asysen w Zakładzie Analizy i Wspomagania Decyzji Insyuu Ekonomerii SGH, eksper Insyuu Badań Srukuralnych, pracownik Biura Badań Sosowanych Insyuu Ekonomicznego NBP. Bohdan Kłos Pracownik Insyuu Ekonomicznego NBP, współauor projeku badawczego na ema cech mechanizmu ransmisji monearnej w Polsce i srefie euro oraz skuków przysąpienia małej, owarej gospodarki do Unii Waluowej. Pior Lewandowski Przewodniczący Rady Fundacji Insyu Badań Srukuralnych, pracownik naukowy i dokoran Szkoły Głównej Handlowej w Warszawie. Wcześniej współpracownik Deparamenu Analiz i Prognoz Ekonomicznych Miniserswa Gospodarki, UNDP Polska. W pracy naukowej zajmuje się badaniami eoreycznymi i empirycznymi z zakresu ekonomii pracy, ekonomii emeryalnej i ekonomerii. Auor publikacji z ego zakresu. Prof. Ronald MacDonald Świaowej sławy ekonomisa, związany m.in. z Universiy of Glasgow, uniwersyeami Florencji, Paryża oraz Mannheim. Wybiny znawca emayki modelowania kursów

10 waluowych oraz poliyki kursowej. Twórca meod szacowania realnych kursów waluowych. Konsulan Międzynarodowego Funduszu Waluowego, Europejskiego Banku Cenralnego, Komisji Europejskiej oraz Narodowego Banku Ausrii do spraw Europy Środkowej i Wschodniej. Członek Moneary Policy Council Nowej Zelandii. Jes auorem wielu podręczników z zakresu makroekonomii i finansów międzynarodowych oraz arykułów w presiżowych journalach m.in. Journal of Macroeconomics, Economic Modelling, Economics of Transiion.

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12 The Behavioural Zloy/Euro Equilibrium Exchange Rae Joanna Bęza-Bojanowska Ronald MacDonald

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14 THE BEHAVIOURAL ZLOTY/EURO EQUILIBRIUM EXCHANGE RATE Joanna Bęza-Bojanowska *, Ronald MacDonald ** Absrac Poland is obligaed o adop he euro afer he fulfilmen, iner alia, of he exchange rae crierion which requires enering he Exchange Rae Mechanism II (ERM II). The European Cenral Bank recommends ha he ERM II cenral rae should reflec he bes possible assessmen of he equilibrium exchange rae. In his paper we use he BEER and PEER approach o esimae real Polish zloy/euro equilibrium rae. Alhough he main goal of our analysis is o compue measures of curren and oal misalignmen, we also check he sensiiviy of he equilibrium exchange rae esimaes o our choice of he risk premium proxy as well as o our approach for compuing he oal misalignmen. We demonsrae ha he BEER/PEER esimaes of he PLN/EUR rae are saisically robus and ha his approach may be useful for seing he cenral pariy rae a which he zloy eners ERM II. JEL Classificaion Numbers: F3, F32 Keywords: equilibrium exchange rae, BEER, PEER, coinegraion analysis, Gonzalo-Granger decomposiion, ERM II * Bureau for Inegraion wih he Euro Area, Naional Bank of Poland ** Glasgow Universiy

15 The opinions expressed herein are hose of he auhors and do no necessarily represen hose of he Naional Bank of Poland. 2

16 Table of Conens Absrac.... Inroducion Measuring he Equilibrium Exchange Rae Economeric mehodology Real PLN/EUR equilibrium rae Model specificaion and daa descripion Behavioural PLN/EUR equilibrium rae Permanen PLN/EUR equilibrium rae Misalignmen analysis Conclusions References Annex Main insiuional changes in Polish exchange rae regime in he years Annex 2 Daa sources and ime series plos Source: The auhors Annex 3 Economeric analysis oucomes Char : Recursive es for sabiliy of loading coefficiens... 7 Char 2: Recursive es for sabiliy of adjusmen coefficiens... 8 Char 3: Curren BEER and PEER for real PLN/EUR rae Char 4: Medium-run BEER and PEER for real PLN/EUR rae Char 5: Curren misalignmen Char 6: Toal misalignmen Char 7: Levels and firs differences of he real PLN/EUR rae and is deerminans Char 8: Recursive LR-es of resricions Char 9: The comparison of BEERs esimaes using differen BS proxies Char : The comparison of PEERs esimaes using differen BS proxies Table : Specificaions of BEER model for he Polish zloy (based on ime series)... 2 Table 2. Coinegraion es (resriced models)... 4 Table 3: Idenificaion of he long-run srucure for real PLN/EUR rae... 4 Table 4: Loadings o Common Trends - VECM... 2 Table 5. Long-Run Impac Marix - VECM... 2 Table 6: Loadings o Common Trends - VECM Table 7. Long-Run Impac Marix - VECM Table 8. The real PLN/EUR rae misalignmen review of he lieraure Table 9: Uni roo es Table. Mulivariae diagnosics Table : Coinegraion es (no weak exogeneiy resricions) Table 2: Coefficiens of VEC models and weak exogeneiy es Table 3: Common Trends - VECM Table 4: Common Trends - VECM

17 . Inroducion Since becoming a member of he European Union, Poland has been paricipaing in he 3 rd sage of he Economic and Moneary Union wih he saus of a counry wih derogaion (European Union, 23). Tha means Poland is obligaed o adop he euro afer he fulfilmen of he Maasrich crieria (European Union, 22), and, iner alia, he exchange rae crierion. Thus, a some poin i will be necessary o abandon he curren floaing exchange rae regime and ener he Exchange Rae Mechanism II (ERM II), which requires seing he cenral pariy agains he euro. However, his raises he quesion of wha ha cenral rae should be. In his paper we argue he rae should be an equilibrium rae and our main focus here is on calculaing curren and medium-run Polish zloy/euro (hereafer PLN/EUR) equilibrium raes and he implied misalignmen of he acual PLN/EUR rae from is equilibrium. Two measures of equilibrium are used in his paper o esimae he equilibrium PLN/EUR, namely he behavioural equilibrium exchange rae (BEER) model, which is applied o calculae he curren equilibrium exchange rae, and he permanen equilibrium exchange rae model (PEER) o esimae he medium-run equilibrium exchange rae. In essence he BEER/PEER approach involves reduced form modelling of he equilibrium exchange rae using coinegraion analysis. The ouline of he remainder of he paper is as follows. In he nex secion we discuss he various ways of esimaing an equilibrium exchange rae and in Secion 3 we go on o presen he economeric mehodology used o esimae our preferred measures of he equilibrium exchange rae, namely he BEER and PEER. Our esimaes of hese equilibrium measures for he Polish zloy/euro rae are presened in Secion 4 and in Secion 5 we give some concluding remarks. 2. Measuring he Equilibrium Exchange Rae In his secion we ouline he mehodology of he BEER and PEER approaches o esimaing he equilibrium exchange rae and conras hem wih varians of he inernal-exernal balance approach. The BEER approach of Clark and MacDonald (998) is no based on any specific exchange rae model and in ha sense may be regarded as a very general approach o modelling equilibrium exchange raes. However, i akes as is saring poin, hough he proposiion ha real facors are a key explanaion for he slow mean reversion o PPP observed in he daa (socalled PPP puzzle, see Rogoff, 996). In conras o some of he FEER based approaches, 4

18 discussed below, i's specific modus operandi is o produce measures of exchange rae misalignmen which are free of any normaive elemens and one in which he exchange rae relaionship is subjec o rigorous saisical esing. We follow Clark and MacDonald (998) and define Z as a se of fundamenals which are expeced o have persisen effecs on he long-run real exchange rae and Z 2 as a se of fundamenals which have persisen effecs in he medium-run, ha is over he business cycle. Given his, he acual real exchange rae may be hough of as being deermined in he following way: q T ' T T = β Z + β 2 Z 2 + τ T + ε, (2.) where T is a se of ransiory, or shor-run, variables and ε is a random error. Following Clark and MacDonald (998), i is useful o disinguish beween he acual value of he real exchange rae and he curren equilibrium exchange rae, where he ransiory and random erms are zero: T T q β Z + β Z 2 q. The laer value is defined for a posiion =. (2.2) The relaed curren misalignmen, cm, is hen given as: cm q q q Z Z T ε, (2.3) T T T = = β β 2 = τ + and so cm is simply he sum of he ransiory and random errors. As he curren values of he economic fundamenals can deviae from he susainable, or desirable, levels, Clark and MacDonald (998) also define he oal misalignmen, m, as he difference beween he acual rae and he rae given by he susainable or long-run values of he economic fundamenals, denoed as: T T m q β Z β 2 Z 2 =. (2.4) By adding and subracing decomposed ino wo componens: q from he righ hand side of (2.4) he oal misalignmen can be m T T = q q ) + [ β ( Z Z ) + β ( Z Z )], (2.5) ( and since q q T T =τ + ε, he oal misalignmen in equaion (2.5) can be rewrien as: m T T T = τ T + ε + β ( Z Z ) + β ( Z Z )]. (2.6) [ Expression (2.6) indicaes ha he oal misalignmen a any poin in ime can be decomposed ino he effec of he ransiory facors, he random disurbances, and he exen o which he economic fundamenals are away from heir susainable values. 5

19 To illusrae heir approach, Clark and MacDonald (998) ake he risk adjused real ineres pariy relaionship, which has been used by a number of researchers o model equilibrium exchange raes (see, for example, Faruqee, 995 and MacDonald, 998): q + = ( r r ) + λ. (2.7) e k * Since in his paper we express he real exchange rae as he home currency price of a uni of foreign currency we adjus all equaions o his definiion. Expression (2.7) may be rearranged as an expression for he real exchange rae as: q = q + ( r r ) + λ, (2.8) e k * and if q + is inerpreed as he long-run or sysemaic componen of he real exchange rae, e k qˆ and rearranging (2.8) wih raional expecaions imposed, we ge: q qˆ * ( r r = ) + λ. (2.9) By assuming ha qˆ is, in urn, a funcion of ne foreign asses, nfa, he Balassa-Samuelson effec, bs, and he erms of rade, o, an expression for he real exchange rae may be wrien as: q * = f [ r r, nfa, o, bs, λ ]. (2.) In pracice, he esimaed BEER is calculaed by linearily summing he coinegraing vecors and he curren misalignmen is generaed as he difference beween he acual real exchange rae and he BEER (see e.g. Clark and MacDonald, 998). As he daa fundamenals may be away from heir equilibrium values, he oal misalignmen may subsanially differ from he curren misalignmen. Clark and MacDonald (998, 24) proposed wo measures of oal misalignmen. In firs exercise hey sugges o se he NFA posiion (of he US) a a 'susainable level' or o use a simple Hodrick-Presco filer o remove he business cycle relaed componen from he daa. As an alernaive o using a Hodrick-Presco filer Clark and MacDonald (24) propose calculaing a oal misalignmen using he Granger-Gonzalo decomposiion of he VECM (Granger and Gonzalo, 995) and his labelled he permanen equilibrium exchange rae (PEER), and is discussed in more deail in he nex secion. The inernal-exernal balance (IEB) approach is an alernaive and popular way of esimaing an equilibrium exchange rae in which deviaions from PPP are explicily recognised. In ha sense i has some similariies o he BEER approach. However, he key difference wih he BEER approach is ha he IEB usually places more srucure, in a normaive sense, on he deerminaion of he exchange rae. In paricular, and in general erms, he equilibrium real exchange rae is defined as ha rae which saisfies boh inernal and exernal balance. Inernal balance is usually aken o be a level of oupu consisen wih full employmen and low 6

20 inflaion say, he NAIRU - and he ne savings generaed a his oupu level have o be equal o he curren balance, which need no necessarily equal zero in his approach. The general flavour of he IEB approach may be capured by he following equaion (for more deails see, for example, MacDonald, 2, 27): S( W ) I ( X ) = CA( qˆ, Y ) = CAP, (2.) where S denoes naional savings, I denoes invesmen spending, W, X, Y are vecors of variables, depending on he model specificaion, and qˆ is he real exchange rae consisen wih inernal balance and he value chosen for he exernal balance objecive (CAP). All of he approaches discussed in his par use a varian of his relaionship. In he fundamenal equilibrium exchange rae (FEER) of Williamson (983, 994) he equilibrium exchange rae is an explicily medium-run concep, in he sense ha he FEER does no need o be consisen wih sock-flow equilibrium (he medium-run is usually aken o be a period of abou 5 years in he fuure). The definiion of inernal balance used in his approach is as given above - high employmen and low inflaion and exernal balance is characerised as he susainable desired ne flow of resources beween counries when hey are in inernal balance. This is usually arrived a judgemenally, essenially by aking a posiion on he ne savings erm in (2.) which, in urn, will be deermined by facors such as consumpion smoohing and demographic changes. The use of he laer assumpion, especially, has mean ha he FEER is ofen inerpreed as a normaive approach and he calculaed FEER is likely o be sensiive o he choice of he susainable capial accoun. I also means ha he misalignmen implied by he FEER is a oal misalignmen. The NATREX model of Sein (994, 999) is also wihin he spiri of he IEB approach alhough, in conras o he FEER approach, boh medium-run and long-run sock-flow consisen measures of he equilibrium exchange rae are calculaed and he equilibrium is esimaed using coinegraion-based mehods which makes he acual measure of equilibrium similar o he BEER. 3. Economeric mehodology The idenificaion of he long-run relaionship beween an exchange rae and economic fundamenals is performed by applying he full informaion maximum likelihood esimaion In he FEER W usually conains budge defici, domesic oupu gap, GDP differenial and dependency raio; X is a vecor of domesic oupu gap, GDP differenial and dependency raio; Y consiss of domesic and foreign oupu gap. In he NATREX W in general conains rae of ime preference and ne foreign asses; X consiss of produciviy, Tobin s q and capial sock; Y is a vecor of Tobin s q, capial sock and ne foreign asses. 7

21 procedure proposed by Johansen (995) o esimae he coinegraed vecor error-correcion model (VECM): K T x = AB x + Γk x k + ΦD + ε, (3.) k = where he noaion is as follows: x is a vecor of p variables, B is a marix of r orhogonal linearly independen coinegraing vecors beween he variables in x, A is an adjusmen marix o he equilibrium rajecories (loading coefficiens), Γ is a marix of he shor-run coefficiens, D is a vecor of j deerminisic variables, Φ is a marix of parameers of deerminisic componens, ε is a vecor of whie noise residuals and T k =,2,..., K,, j =,2,..., J, =,2,..., T, Γ s = Π, Π = AB. p =,2,..., P, As he daa se is limied, he esimaion and esing sraegy follows ha proposed by Greenslade e al. (22). In he firs sage, he weak exogeneiy resricions were esed and imposed (he model reducion process), he coinegraion rank was hen esed and he small sample Barle correcion was hen applied (Johansen, 22). In a final sage he idenificaion of he long-run srucure (Gonzalo and Granger, 995) as well as he recursive es for he coefficiens sabiliy (e.g. Hansen and Johansen, 999) were performed. As Johansen (995) has demonsraed, he above VEC model has a vecor moving represenaion of he following form: i i= i= x = C ε + C ΦDi + Y (3.2) where: C = β ( α β α β α (3.3) α, T T Γ ) = ~ T β - orhogonal complemens o α and β, respecively, ~ β - loadings o p-r common sochasic rends i= C - he long-run impac marix. ε, Granger and Gonzalo (995) have demonsraed ha if he vecor i x has a reduced rank he elemens of his vecor can be explained in erms of a smaller number n-r of I() variables, f, called common facors plus some I() componens, he ransiory elemens x~ : x = A ~ x, (3.4) f + 8

22 where: T A - he loading marix such as α A =, =, f B x A = β α β, (3.5) T ( ) A = α β α. (3.6) 2 ( T ) The idenificaion of he common facors faciliaes obaining he following permanenransiory decomposiion of x : x = P + T, (3.7) where: P T = A α β x T, (3.8) β T = A 2 x. (3.9) In his paper we inend using he VECM approach of Johansen o obain BEER esimaes for he zloy and we will use he Granger-Gonzalo approach o calculae he PEER. 4. Real PLN/EUR equilibrium rae 4.. Model specificaion and daa descripion During he ransiion process he exchange rae regime in Poland evolved from a fixed exchange rae regime, o a more flexible sysem wih he increasing role of he marke in he deerminaion of he exchange rae, o he pure floaing regime ha we currenly observe (see Inernaional Moneary Fund, 25). The Naional Bank of Poland was forced o change exchange rae regimes due o increasing capial flows, which implied growing serilizaion coss (for more deails see Annex ). These insiuional changes subsanially limi he ime span of our analysis of he PLN/EUR equilibrium rae. Since February 998 was he las large inervenion on he Polish foreign exchange marke and he rae hereafer has eiher been flexible wihin a crawling band or fully flexible, we ake he period afer March 998 as a homogenously flexible exchange rae 9

23 regime. For hose reasons our monhly daa spans he period from March 998 o December 27. In esimaing he PLN/EUR equilibrium exchange rae we assume ha he real PLN/EUR rae is deermined by a sandard se of condiioning variables (see, for example MacDonald (27): ne foreign asses (NFA), Balassa-Samuelson effec (bs), erms of rade (o), real ineres rae dispariy (R) and risk premium ( λ ): + / + = q f ( NFA, o, bs, R, λ ), (4.) where he small leers denoe logarihms and he signs above he variables indicae he prediced relaionships beween he sysemaic deerminans of he real exchange rae and he real exchange rae (see Table for examples of BEER applicaions o he Polish zloy). The real exchange rae of he zloy agains he euro (q) is defined as a monhly average of he nominal PLN/EUR rae deflaed by he index of prices in manufacuring (PPIm) a home and in he euro area. We use he PPI in manufacuring, raher han he overall PPI (or CPI 2 ), so as o exclude adminisered prices for elecriciy, gas and waer. As a resul he price deflaor represens a proxy of he prices in radable secor. The ne foreign asses (NFA) in relaion o indusrial producion are calculaed based on he mehodology proposed by Lane and Milesi-Ferrei (24): NFA = NFA + NFA, (4.2) NFA CA + KA, (4.3) where: NFA - iniial value of he ne foreign asses, CA - curren accoun balance, change in capial accoun balance. KA - In his paper, we inended o employ he direc measure of he Balassa-Samuelson effec (i.e. he raio beween relaive produciviy in Poland and in he euro area) o verify he hypohesis ha he real exchange rae of a caching-up economy based on radable prices may appreciae as a resul of he BS effec via he channel of he improvemen in goods qualiy (compare Oomes, 25). This effec is discussed in more deail in he nex secion. However, as he secoral daa on produciviy is no available, we make use of he overall produciviy differenial (bs) beween hese wo economies. Assuming ha: a T = αa, (4.4) 2 We decided o no make use of CPI as a price deflaor because in Poland i is srongly influenced by he adminisered prices, while here is lack of comparable ne inflaion daa for Poland and he euro area for such a long period.

24 a NT = βa, (4.5) where T a and NT a denoe respecively produciviy in radable and nonradable secor and a is an overall produciviy, hen relaive produciviy grows a rae: a T NT a = ( α β ) a, (4.6) which is proporional o overall produciviy growh (compare Oomes, 25). To check he influence of his assumpion on our resuls, we decided o consruc he second proxy of he BS effec (bsn), where he radebles produciviy is approximaed by he produciviy in manufacuring, while he nonradable produciviy growh differenial beween Poland and he euro area is assume o be consan and equal o 5%. The higher produciviy growh in he Polish nonradables secor resuls from foreign direc invesmen inflows (see e.g. Alberola, Navia, 27). The erms of rade (o) is defined as a relaive raio beween expor and impor prices in Poland and Germany. As he corresponding daa for he euro area is unavailable, i was assumed ha changes in German erms of rade are represenaive for he euro area. This assumpion should no have significan impac on he resuls as he relaive erms of rade is o represen compeiiveness of Polish economy and Germany consiues Polish main rading parner 3. The real ineres rae dispariy (R) is defined as a difference beween monhly average of -year governmen bond yields for Poland and he euro area, deflaed by PPIm. In order o perform he sensiiviy analysis, we also employ differen proxies of he risk premium reflecing he fiscal sance of he economy: he budge defici (DEF) and budge deb (DEBT) in relaion o indusrial producion, respecively. As he monhly daa on a comparable risk premium measure in he euro area is no available, his variable is no expressed in he relaive erms. However, his should no resul in he loss of he informaiveness of he daa. The risk premium for he zloy denominaed invesmen is deermined by he deviaion of he defici from he reference value (3% of GDP for he general governmen defici and 6% of GDP for he deb; European Union, 22) and he acions aken by he governmen in order o fulfil fiscal crierion raher han is level in he euro area. For daa sources and ime series plos see Annex 2. 3 In 27 Germany accouned for 25,9% of Polish expors and 24,% of impors.

25 Table : Specificaions of BEER model for he Polish zloy (based on ime series) PAPER TIME SPAN EXCHANGE RATE OTHER VARIABLES Alberola and Navia, 27 Bęza-Bojanowska, , Q effecive, CPI-based PROD, NFA , M bilaeral, PPI-based Darvas, , Q bilaeral, CPI-based Eger and Lahreche- Revil, 23 Eger and Lommazsch, 24 Kelm and Bęza- Bojanowska, 25 Kemme and Teng, 2 Lommazsch and Tober, 22 Rahn, /993-2, Q effecive, CPI-based , Q bilaeral, based on CPI and PPI REL(CPI/PPI), RIR, NFA, TOT, DEF, DEBT PROD, TOT, EXP, NFA, FDI, NFA, FDI, rger PROD, PRIV, REL(CPI), CA, TOT, OPEN PROD, RIR, OPEN, TOT, REG, FDEBT, DEBT , M bilaeral, CPI-based RIR, DEF, SDEBT, TB , M effecive, based on CPI and PPI EXP, CA, RW, OPEN 994/995-2, Q bilaeral, PPI-based PROD, GDP*, RIR, NFA 99/993-22, Q bilaeral and effecive, CPI-based REL(CPI/PPI), NFA Rawdanowicz, , Q bilaeral, CPI-based PROD, TOT, RIR Rubaszek, , Q effecive, PPI-based GDP, GDP*, NFA, RIR, DEF CA curren accoun o GDP/indusrial producion; DEF budge defici o GDP/indusrial producion; DEBTgovernmen deb o GDP/indusrial producion, EXP governmen expendiure o GDP/indusrial producion; FDEBT foreign deb o GDP, FDI foreign direc invesmen o GDP; GDP- domesic produc, GDP* foreign produc; NFA ne foreign asses o GDP/indusrial producion; OPEN openness raio (foreign rade urnover o GDP/indusrial producion); PROD produciviy; PRIV privae consumpion o GDP; REL(CPI) nonradable prices differenial approx. by CPI; REL(CPI/PPI) indirec BS effec proxy; REG differenial in regulaed prices vis-à-vis Germany, rger real ineres rae in Germany; RIR real ineres rae dispariy; RW real wages; SDEBT shor erm budge deb o GDP, TB rade balance o GDP, TOT erms of rade, Q- quarerly daa, M- monhly daa. Source: The auhors (parly based on Eger, 24) Behavioural PLN/EUR equilibrium rae A he ouse he inegraion order of all poenial exchange rae deerminans, as well as exchange rae iself, was checked using sandard ADF and KPSS ess. As all variables are 2

26 inegraed of order one (see Table 9 in Annex 3), he VECM mehodology was used o esimae he PLN/EUR equilibrium rae. In he firs sage of he economeric analysis, we esimaed wo VAR models: VAR, wih he budge defici included, and VAR2 wih budge deb as an alernaive o he budge defici 4. We joinly specified he deerminisic componen of he VAR models and he lag lengh. This resuled in VAR(2) model and he deerminisic componen consising of he consan and dummies variables 5 (necessary o eliminae he residuals skewness). The analysis of a number of residual diagnosic ess confirms ha he esimaed VARs are well specified (see Table in Annex 3). The LM es indicaes he lack of significan residual auocorrelaion, while he es for mulivariae normaliy (Doornik and Hansen, 994) indicaes ha residuals are normally disribued; here is also no significan ARCH effec in residuals. In he nex sage, following he proposiion of Greenslade e al. (22), he coinegraion rank es along wih he idenificaion of weak exogeneiy was performed. The number of coinegraing vecors was deermined by applying he race es wih a Barle correcion, as well as he analysis of he larges characerisic roos of he companion marix (see Table in Annex 3). The race es srongly indicaes he exisence of one coinegraing vecor in each sysem. The analysis of he number of characerisic roos (Juselius, 26) confirms he former finding. Assuming ha coinegraion rank equals, he long-run relaions were deermined on he basis of he Johansen procedure. As he sysem is o represen he real PLN/EUR equilibrium rae rajecories, all vecors were normalised on he exchange rae. Three variables (erms of rade, BS effec and risk premium proxy) proved o be weakly exogenous in each model (see Table 2 and Char 8 in Annex 3). The weak exogeneiy of hese variables is fully in line wih economic reasoning. Poland, as a small open economy, is he price-imporer, hus he prices (erms of rade and BS effec) are no significanly adjusing o he exchange rae equilibrium rajecory, mainly defined for domesic variables. Moreover, he composiion of he coinegraing vecor implies also he weak exogeneiy of he risk premium. As he exisence of he weakly exogenous variables may affec he coinegraion rank, he coinegraion es was performed once again and he exisence of one coinegraing relaion was again suppored (see Table 2). 4 As he resuls proved o be robus o changes in he BS effecs proxy, we did no repor parial resuls wih he second BS proxy (bsn). The final oucome, he esimaes of he equilibrium exchange rae, is repored in Char 9-Char in Annex 3. 5 Dummy variables reflecs such effecs as: las Naional Bank of Poland inervenion on he foreign exchange marke (Jul 98), currency crisis in Russia (Aug-Sep 98), financial and poliical ensions in Turkey (Jun ), Polish Prime Miniser s announcemen of a risk of financial crisis in Poland (Jul 7), speculaion aack on Hungarian forin (Jun 3), ensions on he Hungarian foreign exchange marke, decrease in he Hungarian raing (Jun 5). 3

27 Table 2. Coinegraion es (resriced models) Hypohesis Eigenv. Trace Trace BC Trace* VECM Modulus: 3 larges roos r=2 r= r= r= * r= r= VECM2 r= * r= r= NA Trace BC race es saisic wih Barle correcion Trace* - 9% quaniles from he asympoic ables generaed in CATS Source: The auhors. Having esablished he exisence of a single coinegraing vecor, we nex performed he idenificaion of he long-run srucure of he VEC models wih weak exogeneiy resricions (see Table 3), by imposing normalizing resricion. In each model varian all variables are correcly signed and saisically significan. Moreover, he forward recursive es of parameer consancy acceps coefficien sabiliy over ime (see Char and Char 2). Table 3: Idenificaion of he long-run srucure for real PLN/EUR rae VECM VECM2 Varian q NFA R o bs DEF DEBT c LT (4.4) (2.94) (.664) (.83) (-4.227) (-4.355) ECT (-2.294) (-7.533) (-.734) LT (3.27) (2.56) (.973) (.359) (-4.664) (-4.7) ECT (-3.484) (-5.36) (-2.77) The able is divided ino 2 pars, corresponding o differen BEER model specificaions. The upper and lower panel of each par repors respecively he loading (LT) and he adjusmen (ECT) coefficiens of he normalized vecor esimaion wih -Suden saisics in brackes. Source: The auhors. In each varian of he model he idenified long-run relaionship is significanly adjusing o he exchange rae equaion. This implies ha he coinegraing relaions represen he 4

28 PLN/EUR equilibrium rae rajecories wih a half-life of a shock 8 and 4 monhs, respecively. This is a high speed of convergence o he equilibrium and is subsanially faser han in PPPbased models. However, i is broadly consisen wih hose obained in oher sudies, which apply he BEER mehodology (e.g. for Poland: Alberola and Navia, 27; for he euro area: Maeso-Fernandez e al., 2). The esimaion resuls indicae ha in he long-run ne foreign asses, he real ineres rae dispariy, he erms of rade, he BS effec and he risk premium have a significan influence on he real PLN/EUR rae. An increase in ne foreign deb leads o he zloy appreciaion. Susainable ne foreign deb is naural for caching-up economies like Poland (see European Commission, 22). Seady growh in foreign asses and liabiliies of agens is a resul of he inegraion process of he Polish financial marke wih inernaional marke as well as he convicion ha Poland is an aracive counry for foreign invesmen (Naional Bank of Poland, 27). Since budge deb akes over a par of NFA impac on he exchange rae hrough he ineres paymen channel, he magniude of he NFA coefficien is lower in his model han in he model varian wih a budge defici variable. An increase in he real ineres rae dispariy, implying higher profiabiliy of zloy denominaed asses, also creaes an appreciaion pressure on he currency. The coefficien value depends on he price sickiness and he oupu gap sensiiviy on he price level as well as he aggregae demand sensiiviy o he real exchange rae and he exisence of capial resricions (MacDonald and Nagayasu, 2). The oucome ha an increase in erms of rade resuls in he zloy appreciaion poins o low price elasiciies of ne expors. If expors and impors have low price elasiciies, such as primary or very differeniaed goods, an increase in he erms of rade would imply an increase in expor revenues and hence an amelioraion of he rade balance, which could resul in an appreciaion of he nominal and hus he real exchange rae. A he same ime, growing expors revenues may induce higher consumpion of nonradables and may inensify a pressure on domesic currency appreciaion hrough he BS effec. An increase in he BS effec is associaed wih he real appreciaion of he Polish zloy. Higher relaive produciviy, parly driven by foreign direc invesmen, implies improvemen in supply capaciies and qualiy of domesic goods as well as is repuaion. This resuls in changes in consumers preferences: a rise in he share of domesic goods accompanied by decrease in he share of impored goods. Simulaneously, higher demand for domesic goods (also from abroad) increases demand for domesic currency and resuls in he zloy appreciaion (for more deails see e.g. Eger and Lommazsch, 24). An increase in he risk premium generaes a depreciaion of he domesic currency. Higher governmen spending, leading o an increase in he budge defici and deb, undermines confidence in a currency. Simulaneously, as noed above, an increase in governmen 5

29 indebedness negaively affecs domesic currency hrough he ineres paymens channel (Maeso-Fernandez e al., 2). The resuls described above are very ineresing from he poin of view of Poland s fuure membership of ERM II. They imply ha in erms of raional macroeconomic policy, as well as he good shape of he economy, PLN/EUR equilibrium rae will be subjec o appreciaion pressure. Assuming raionaliy of economic agens (ha does no seem o be srong assumpion aking ino accoun he level of he adjusmen parameer) he acual PLN/EUR rae should appreciae. I does imply ha he exchange rae crierion may no be as problemaic for Poland as i used o be expeced and ha Poland may follow Slovak experience wihin ERM II (srong and persisen appreciaion pressure). 6

30 Char : Recursive es for sabiliy of loading coefficiens VECM 2. Q = TOT.5..5 CONSTANT NFA.2..7 BS R.75 DEF VECM2 2. Q = TOT CONSTANT NFA.5 BS R.5 DEBT Source: The auhors. 7

31 Char 2: Recursive es for sabiliy of adjusmen coefficiens VECM DQ DR DNFA VECM DQ. -.2 DR DNFA Source: The auhors. 8

32 4.3. Permanen PLN/EUR equilibrium rae In he nex sage of our equilibrium exchange rae analysis we esimaed a PEER. In consrucing he PEER we made use of he moving average represenaion of he VEC model and his follows he derivaion oulined in Secion 2. The bea orhogonal componens of each model and he long-run impac marices are repored in Table 4-Table 7. In VECM he firs and fifh common rends (CT() and CT(5)) correspond o unanicipaed shocks o real ineres dispariy and ne foreign asses, while CT(2)-CT(4) are driven by erms of rade, BS effec and risk premium, respecively. In VECM2 unanicipaed shocks o ne foreign asses and real ineres dispariy are represened by he forh and fifh common rends (CT(4) and CT(5)), while CT()-CT(3) are driven by erms of rade, BS effec and risk premium, respecively. For deails see Table 3 and Table 4 in Annex 3 The analysis of Table 4 and Table 6 give us he informaion abou he forces (represened here by common rends) ha pull each variable in he sysem. From our poin of view he mos ineresing is he exchange rae ha in each sysem is significanly influenced by he shocks o he real ineres dispariy erm and he BS effec. The VECM poins ha he PLN/EUR rae is also affeced by he unanicipaed shocks o budge defici. Furher insigh ino he pulling variables in our sysem may be obained by calculaing he long-run impac marix (Table 5 and Table 7) which gives informaion if he shock o a paricular variable has a permanen effec on he oher variables in he sysem. These resuls confirm our previous finding ha shocks o real ineres dispariy, BS effec and budge defici have a significan long-run impac on he real PLN/EUR rae. I is also ineresing o noe ha in he log-run mos of he variables influence he budge deb. The las finding has a pracical implicaion for fiscal policy wihin ERM II. In his period he long-run ineres raes will be under he pressure of he convergence play resuled from he expecaions on he adjusmen of he policy raes o he ECB level. Addiionally, in erms of increasing probabiliy of he membership in he euro area, he capial inflows will be araced (increase in he NFA deb), implying he zloy appreciaion. These will faciliae financing budgeary needs and migh resul in expansionary fiscal policy. However, he fiscal crierion requiremens will limi he moral hazard and should ensure opimal policy mix wihin he ERM II period: igh fiscal policy combined wih looser moneary policy. Thus, i should eliminae he poenial depreciaion pressure on he exchange rae. 9

33 Table 4: Loadings o Common Trends - VECM BETA_ORT(ilde) CT() CT(2) CT(3) CT(4) CT(5) q (-3.84) (-.22) (-3.84) (2.284) (.533) NFA R o bs DEF Source: The auhors (-.54) (.25) (-.698) (.767) (.68) (3.85) (.86) (.5) (.78) (-.25) (-.6) (.643) (.275) (.278) (-.97) (.35) (-.538) (9.832) (.76) (.46) (-.832) (.577) (-.326) (5.928) (.42) Table 5. Long-Run Impac Marix - VECM C q NFA R o bs DEF q (.765) (.533) (-3.84) (-.22) (-3.84) (2.284) NFA R o bs DEF Source: The auhors (-.633) (.68) (-.54) (.25) (-.698) (.767) (-.589) (-.25) (3.85) (.86) (.5) (.78) (.279) (-.97) (-.6) (.643) (.275) (.278) (-.83) (.46) (.35) (-.538) (9.832) (.76) (-.7) (.42) (-.832) (.577) (-.326) (5.928) 2

34 Table 6: Loadings o Common Trends - VECM2 BETA_ORT(ilde) CT() CT(2) CT(3) CT(4) CT(5) q (-.33) (-3.262) (.337) (.29) (-3.556) NFA (.67) (-.259) (-.53) (.767) (-.97) R (.236) (.296) (.26) (-.2) (2.54) o (.573) (.46) (.256) (-.36) (.3) bs (-.642) (.449) (.558) (.87) (-.84) DEBT (.689) (-.358) (4.79) (2.586) (-2.49) Source: The auhors. Table 7. Long-Run Impac Marix - VECM2 C q NFA R o bs DEBT q (.772) (.29) (-3.556) (-.33) (-3.262) (.337) NFA R o bs DEBT Source: The auhors (-.67) (.767) (-.97) (.67) (-.259) (-.53) (-.748) (-.2) (2.54) (.236) (.296) (.26) (.22) (-.36) (.3) (.573) (.46) (.256) (-.32) (.87) (-.84) (-.642) (.449) (.558) (-2.25) (2.586) (-2.49) (.689) (-.358) (4.79) Finally, we calculae he PEER level and compare i wih our BEER esimaes (see Char 3). The relaively close relaion beween he BEER and PEER series indicaes ha he BEER (especially BEER2) has only a small ransiory componen. As Clark and MacDonald (998, 24) proved for US he oal misalignmen may depend significanly on he approach o compuing i. Thus, in order o check wheher i is also valid for Polish zloy, we decided o compue he oal misalignmen also using he sandard way, described by he equaions (2.4)- (2.6). In he firs varian (labelled BEER HP in Char 4) we se he long-run values of he economic fundamenals a he level indicaed by he Hodrick-Presco filer (wih he smoohing 2

35 parameer fixed a he level of 44; Ravn and Uhlig, 22). Addiionally, we calibrae he NFA a is opimal level (39% of GDP, European Commission, 22) and he real ineres rae dispariy a he level consisen wih he naural ineres raes in Poland and in he euro area 6, while he res of he fundamenals are mainained a he level indicaed by HP filer (BEER LT in Char 4). However, as he assumpions on he susainable opimal level of he above lised variables is fairly srong, we recommend o rea he BEER LT wih some cauion and we repored i only for he comparison. The analysis of Char 4 indicaes ha in he pas here used o be significan and persisen differences beween he PEER and he medium-run BEER, bu since 23 he relaion beween PEER and he laer ype of BEER becomes closer, and, wha s more, since EU accession he misalignmen almos disappeared (in case of BEER LT since mid-25). I may imply ha he assumpions on he opimal level of fundamenals are correcly chosen only for he second half of he analysis horizon. Char 3: Curren BEER and PEER for real PLN/EUR rae,8 RER BEER PEER BEER2 PEER2,6,4, Source: The auhors. 6 The assumpions on he real naural ineres rae in Poland (4%) and in he euro area (2%) follow Brzoza-Brzezina (25). 22

36 Char 4: Medium-run BEER and PEER for real PLN/EUR rae,8 RER BEER HP BEER2 HP BEER LT BEER2 LT PEER PEER2,6,4, BEER HP - long-run values of he fundamenals se a he level indicaed by HP filer BEER LT - long-run values of he fundamenals, excep of NFA and R, se a he level indicaed by HP filer, NFA and R calibraed a he opimal level Source: The auhors Misalignmen analysis Since he main goal of he paper is o idenify he equilibrium PLN/EUR rae we now in he final sage of our analysis compue he curren and oal real PLN/EUR rae misalignmen. The curren misalignmen reflecs he difference beween he acual real PLN/EUR rae and he curren behavioural equilibrium exchange rae while he oal misalignmen is represened by he difference beween he acual exchange rae and he permanen equilibrium rae. All models poin o significan misalignmens a he same poins in ime and of he same direcion. The misalignmen magniude is comparable beween model ypes (he BEERs and PEERs). In general he misalignmen direcion indicaed by he models is in line wih oher researchers resuls, boh wih BEERs and FEERs esimaes for he zloy (see Table 8). The las finding has pracical implicaions for any fuure decision on he level of he cenral pariy in he ERM II. There are concerns abou he applicabiliy of he equilibrium exchange rae esimaes for seing he cenral pariy of he caching-up economies currencies (European Commission, 24). This seems no o be valid for Polish zloy as he misalignmen 23

37 proved o be invarian o he changes in he approach o esimae he equilibrium rae, especially o swiches beween BEERs/PEERs and FEERs (see Table 8 for deails). The resuling misalignmens for boh he BEER and PEER, presened in Char 5 and Char 6, conain several ineresing findings:. The srong appreciaion of he real equilibrium exchange rae, accompanied by an acual exchange rae appreciaion, observed in he years may be inerpreed as a confirmaion of he hypohesis of he naural appreciaion of he exchange rae of he ransiion counry (Halpern and Wyplosz, 997). This appreciaion reflecs he adjusmen of he marke exchange rae o is equilibrium value ha is also in he majoriy of cases appreciaing (see e.g. Kelm and Bęza-Bojanowska, 25). 2. I seems ha he iming of he inroducion of a floaing exchange rae regime (April 2) was correcly chosen, as he acual exchange rae was close o he acual equilibrium exchange rae and he oal misalignmen was raher small. This finding may seem o be conroversial, aking ino accoun high curren accoun defici a ha ime. However, if he relaion beween he accumulaion of he large ne foreign liabiliies and he producion poenial (especially he produciviy) is srong, he relaionship beween he curren accoun balance and he exchange rae is broken. Thus, in he presence of high curren accoun defici, he exchange rae may prove o be fairly valued (compare Alberola, Navia, 27). 3. In he years 2-22, when he PLN/EUR rae reached is hisorically sronges level, he zloy was overvalued on average by 3-6% in erms of he curren misalignmen and 2-3% in erms of he oal misalignmen. The magniude of he misalignmen seems o be much lower ha ha perceived a ha ime by various economiss. 4. All models unambiguously indicae he highes misalignmen in February 24, amouning o he zloy undervaluaion of -6% in erms of he curren real equilibrium exchange rae and of -2% for medium-run equilibrium exchange rae. This maximum misalignmen coincides wih he hisorically weak level of he PLN/EUR rae, reached mainly as a resul of poliical ensions in Poland. 5. Since May 24 o he end of 27, he real PLN/EUR rae developmen was broadly in line wih he curren and medium-run equilibrium rae. We observe gradual appreciaion of he equilibrium rae, ha was a lile bi sronger (especially in 27) han ha of he acual rae. The appreciaion pressure seems o be mainly a resul of he BS effec and significan decrease in risk premium. In his connecion, he zloy appreciaion in 28 may be perceived o some exen as a correcion of he acual rae owards is equilibrium. 24

38 Source: The auhors ,25 -,2 -,5 -, -,5,,5,,5,2 PEER PEER2,25 Char 6: Toal misalignmen Source: The auhors ,25 -,2 -,5 -, -,5,,5,,5,2 BEER BEER2,25 Char 5: Curren misalignmen

39 Table 8. The real PLN/EUR rae misalignmen review of he lieraure PAPER MODEL PERIOD MISALIGNMENT OUR OUTCOMES Bęza-Bojanowska, 28 Couder and Couharde, 22 Éger and Lommazsch, 24 Lommazsch and Tober, 22 Rahn, 23 Rawdanowicz, 22 Rubaszek, 24 BEER PPI-based FEER CPI-based BEER based on CPI and PPI BEER PPI-based BEER CPI-based FEER CPI-based FEER based on GDP deflaor Feb 24 Dec (+): % close o ER (-): 7% (-): 3% Q4 22 (-): 2-5% (-): % (+):.7-6.6% close o ER (-): -4% (-): 2-3% Q4 2 (-): % (-): 3-7% Q 22 (-): -5% (-): 6-9% 22 (-): % (-): 2-3% Q4 23 (+): 6.4% (+): 8-9% (+) undervaluaion, (-) overvaluaion, ER equilibrium rae For FEERs oals misalignmen was repored (las column) Source: The auhors (parly based on Eger, 24). 5. Conclusions Poland is obliged o ener he euro area afer he fulfilmen of nominal convergence crieria, which includes paricipaion in he ERM II. This requires abandoning he floaing regime and seing he cenral pariy agains he euro. The ECB recommends ha he cenral rae should reflec he bes possible assessmen of he equilibrium exchange rae, based on a broad range of economic indicaors while aking ino accoun he marke rae (European Cenral Bank, 23). The analysis carried ou in his paper focuses on calculaing he curren and medium-run real PLN/EUR equilibrium rae while differen risk premium proxies are employed. The objecive of he analysis, apar from he assessmen of he curren siuaion on he foreign exchange marke, includes he sensiiviy analysis of he curren and medium-run equilibrium rae esimaes using BEER and PEER approaches. Applying Johansen s procedure, wo models of he PLN/EUR equilibrium rae were esimaed. Those models differ in he scope of proxies for he risk premium. The resuls indicae ha ne foreign asses, real ineres dispariy, he erms of rade, he BS effec and he risk premium deermine he real PLN/EUR equilibrium rae. I means he budgeary siuaion may play a crucial role for he sabiliy of he PLN/EUR rae in he ERM II. 26