General study of behavioral equilibrium exchange rate of Mongolian tugrik against foreign currency

Abstract

In this paper, we will define The Behavioral Equilibrium Exchange Rate (BEER) model on Mongolian tugrik and appraised the difference between the real exchange rate of the tugrik and the equilibrium level against the foreign currency by using possible methods of the dynamic linear.

Based on other empirical studies we have selected variables such as domestic and foreign interest rate differentials, international trade condition index, foreign direct investment (FDI), foreign trade dependence, net foreign assets (NFA), and government spending as the underlying factors determining the real exchange rate equilibrium. Statistically, in Mongolian economy, these factors can be used as basic indicators to determine the equilibrium level of the real exchange rate of the tugrik. Between 2000 and 2009, the real exchange rate of the tugrik averaged 4.5 percent of the undervalued values and 5.1 percent of the overvalued values. During this period, the real exchange rate of the tugrik averaged 1.1 percent of all deviations from the equilibrium level, indicating that over time the real exchange rate of the tugrik has generally been rated higher than the equilibrium level.