The objective of the long-term balance equation to estimate only the effective exchange rate equilibrium (EREER). So, to get a closer look at the impact and the role of the variables on the REER, the need to analyze the response of the real exchange rate shocks in the short-term macro. This will be presented in the VAR model in the next section.
Figure 1 depicts the typical economic quantities of long-term, fundamental economic variables will initially be smoothed (smoothing) through the filter Hodrick - Prescott (HP) to remove components and cyclical components only retain long-term trend of basic economic variables. Smoothing parameter selected in 1600, with quarterly data, Pham The Anh (2013) [11].
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