Capital‐Enhanced Equilibrium Exchange Rate in the Presence of Structural Breaks : Evidence from the Visegrad Countries

In this paper I test the validity of the capital‐enhanced equilibrium exchange rate (CHEER) approach for the four Visegrad new EU countries. Recent unit root and cointegration techniques with structural breaks in the data have been used. The CHEER approach is empirically validated only for the Czech Republic, while for Poland and Slovakia there is evidence of plausible economic relationships between the nominal exchange rate and each of the price and interest rate differentials. In contrast, such a relationship cannot be identified for Hungary