We use the Beveridge-Nelson decomposition to calculate the permanent components of
the macrofundamentals. With these and the estimated long run equilibrium exchange rate
equation we calculate the long run equilibrium exchange rates. The misalignments are then
calculated as short run deviations of the observed real exchange rates from their respective long
run equilibrium values. Because the nominal exchange rate regime was more flexible for the
zloty the real exchange rate could equilibrate more quickly. The maximum overvaluation and
maximum undervaluation were 6% and 10% respectively. However, for the Ruble, with a less
flexible exchange rate regime, the maximum overvaluation was 21%, 250% greater than that for
the zloty, and the maximum undervaluation was also 21%, 100% higher than that for the zloty. .
Finally, we examine whether movements in the macroeconomic fundamentals, along
with other short run factors, in the pre-crisis periods could explain and predict the exchange rates
in the post-crisis periods. Two out of sample forecasting exercises are performed for the post-
crisis period. First, the real exchange rates are forecast for the post-crisis period with the known
values of the exogenous variables and lagged values of the real exchange rate; a one period
ahead static forecast. Then the forecasts are performed with the lagged values of the real
exchange rate from the previous period forecast and with the known values of the exogenous
variables; a one period ahead dynamic forecast. While the static forecasts do reasonably well, the
dynamic forecasts indicate that the movements of the real exchange rates in the post-crisis
periods are significantly different from that in the pre-crisis periods. Thus, the currency crises in
Russia could not be anticipated with the movements of the real exchange rates estimated on the
basis of macroeconomic fundamentals alone.