Real effective exchange rate in the monitoring system of the occurence of crisis phenomena in the countrys economy
Year: 2025
Type: article
Abstract: The article examines the importance of the real effective exchange rate (REER) as a basic indicator for assessing the imbalance of the country's economy and its susceptibility to financial and economic crises in the future. The logic of using the real effective exchange rate (REER) as an indicator of changes in the price competitiveness of goods in the two-factor model «the ratio of inflation and the scale of prices – the nominal exchange rate» and as a criterion for the emergence of crisis phenomena in the country's economy is presented. The advantages of the methodology for calculating indicators and standards by the Macroeconomic Imbalance Procedure for identifying possible crisis phenomena in the economies of the European Union have been disclosed. The volatility of the real effective exchange rate in the EU countries and Ukraine for 2014–2023 is calculated as an indicator of the instability of the economy. It has been found that low values of a single macro-indicator do not determine a high probability of a crisis in a country, however, a combination of indicators that exceed the maximum permissible values for a long period with high volatility, which indicates instability in the markets, may be evidence of negative trends. Based on the results of the calculations, the EU-27 countries and Ukraine were segmented by the «real effective exchange rate» indicator to identify the countries with the best «REER volatility –imbalance» ratio. It is determined that the best REER volatility-imbalance ratio over the past decade has been demonstrated by Slovenia, Denmark and Luxembourg, which have a sufficient margin of safety of the REER indicator. It is noted that the problem for Ukraine is the volatility of the real effective exchange rate (REER), which is characterised by a high dispersion of its values. When comparing the external imbalances of Ukraine and the European Union countries in terms of the real effective exchange rate, its instability in the analysed period is revealed. The dispersion of values indicates serious currency risks and unpredictable trends in market conditions that partner countries will inevitably face when establishing long-term cooperation with Ukraine.
Source: Galician economic journal
Authors: Olha Vysochan, Orest Korenovskyy, Nataliia Lytvynenko
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: diamond
OpenAlex ID: W4412198604