Equilibrium real effective exchange rate estimation for the Slovak economy

Equilibrium real effective exchange rate estimate for the Slovak economy presented in this paper helps to evaluate the total impact of the development of nominal exchange rates against the currencies of Slovakia’s relevant trading partners, domestic and foreign inflation on the price competitiveness of domestic companies over time. The appreciating trajectory of the equilibrium exchange rate is related to the gradual nominal convergence of the Slovak economy to the developed countries that is founded on the macroeconomic fundamentals development reflecting ongoing real convergence. On the basis of the equilibrium real exchange rate forecast resulting from the predicted values of the fundamentals, further real appreciation can be expected corresponding with the continuing convergence of the economy also in the future without jeopardizing the economic balance. The real exchange rate misalignments contribute to the identification of expansive or restrictive monetary policy influence on the economy.