Long-Run Equilibrium Determinants of the Real Effective Exchange Rate: A Stock-Flow Perspective
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The real effective exchange rate plays an important role as the figure to represent between one country’s potential intrinsic competitiveness versus others. Consequently, this study aimed to study fundamental factors and their relationships in determining the real effective exchange rate including analyzing the factors of long-run determinants of the real effective exchange rate and test Macroeconomic Balance Approach by stock-flow perspectives with monthly data series since the adoption of managed floating of the exchange rate in Thailand from July 1997 up until July 2003.
The results revealed that both stock and flow were long-run relationships and could be used as long-run determinants of the real effective exchange rate. In addition, predicting in the real effective exchange rate revealed that real effective exchange rate tended to decrease (real Baht currency appreciated) and real effective exchange rate in long-run would be more stable. So, the suggestion of this studying are: the government, Bank of Thailand and through the another financial institutes can use for the guideline to development the economic system, the management of exchange rate policy and continue to protecting the risk from exchange rate more effectively.
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