The condition expressed in equation (1) can be written in terms of each SRER as
is the SRER between country i's currency and the reference country for good i.
Recent contributions that use this model to analyze SRER dynamics of developed markets include Obstfeld and Taylor (1997), Sarno, Taylor, and Chowdhury (2004), Imbs et al.
First, we estimate TAR models for each SRER. Second, we explore the validity of the nonlinear threshold model with respect to a null hypothesis of unit root process.
As described previously, frictions to trade imply the presence of significant nonlinearities in SRER dynamics.
In the ERM2/Euro Area context the difference between an estimate of the SRER and the observed real exchange rate measures exchange rate misalignment for historic data and a conflict between the fixed exchange rate and the decreed inflation objective for projections.
This paper differs from and updates our previous attempts at the SRER estimation in several respects.
The normative target, SRER framework has been built around econometric trade equations relating exports and imports to fundamental variables such as the real exchange rate, the terms of trade, external debt, and domestic and foreign economic activity.
In the SRER framework the path of sustainable debt can be approximated by considering the initial stock of debt and the country specific sustainable debt target for the end of the simulation period.
Nevertheless, the impact of changes in the sustainable debt to GDP ratio on the SRER estimates is relatively small: a 10 percentage point change in the ratio generated a change in the equilibrium real exchange rate of 0.04-0.4 percent only (Bulir and Smidkova, 2005).
In November 2001, nine members of Russia's Parliament were among the eighteen participants at a conference on SRER at the Turin Centre.
For example, the ILO received support from the Directorate-General for Employment and Social Affairs of the European Commission in the sponsorship and organization of an international conference on SRER, held in Athens in April 2003.