PP/01/2011 Estimating the Equilibrium Exchange Rate in Belarus
The exchange rate of the Belarusian ruble has recently regained substantial attention. After serious balance-of-payments problems, the National Bank devalued eventually at the end of May 2011 the ruble versus the US-dollar by 56%. At the same time, this action has not restored order in the market, which is still not working properly. These developments also renewed interest in a quantitative assessment of the equilibrium exchange rate of the ruble. This is the level of the exchange rate that is determined by the values economic variables (“fundamentals”) that are projected to prevail in the medium-term such as relative inflation, interest rates or economic growth. However, market exchange rates are also influenced by other “non-fundamental” factors, which can lead to substantial short-run movements away from its fundamental value.