This study provides the theoretical background and empirical investigation that are essential for the estimation of the equilibrium real exchange rate (ERER) for the Maltese lira.

With a GDP of around €5.1 billion and a population of 400,000 living in an area of 316 km2, Malta is the smallest and most densely populated EU Member State. In 2006 it had the fifth most open economy in the EU, and its average trade-to-GDP ratio hovered around 81% in recent years. These...