966
Serial number: 02/2019
Author(s): Vugar Rahimov, Heyran Aliyeva
Language: Azerbaijani
Date: 2019
Abstract: In this paper, we examine the main variables affecting the REER of Azerbaijan using behavioral equilibrium exchange rate model and compute the degree of misalignment of actual REER from the equilibrium exchange rate suggested by the estimated model over 2003Q1-2018Q1. According to the results, own lag (inertia) of REER, labor productivity differentials with the main trading partners, real oil price and interest rate differentials with external sector are the main determinants of the REER. The study also reveals that there is misalignment from the equilibrium exchange rates at different time periods.
Key words: Real effective exchange rate, actual REER, behavioral equilibrium exchange rate model, misalignment, Azerbaijan
JEL classification: F31, F41
