Munich Personal RePEc Archive

El Tipo de Cambio Real de Costa Rica

Leon, Jorge and Mendez, Eduardo and Prado, Eduardo (2003): El Tipo de Cambio Real de Costa Rica.

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Abstract

This paper estimates Costa Rica’s Equilibrium Real Exchange Rate (ERER) using quarterly data from 1991 to 2003. Cointegration and Unit Root tests are used to determine if the Purchasing Power Parity (PPP) applies. The results show that PPP does not stand. The ERER is an unobservable variable; therefore it is approximate by two methods developed in the literature: BEER (Behavioral Equilibrium Exchange Rate) which explains the deviations from PPP as a result of changes in the fundamentals; and FEER (Fundamental Equilibrium Exchange Rate) that estimates the long run equilibrium path of the real exchange rate under a partial equilibrium structural model. Both methods show a real appreciation in the 90s until 2001 and a real undervaluation of the colón for 2003.

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