Real Exchange Rate Misalignment: Prelude to Crisis?

To construct FGDP, major import partners were found from Europa World Year Book,
(2003).³⁶ The five major importers for Russia are Germany, USA, Italy, France, and Finland. For
both countries data on GDP was obtained from IFS. Data on the CPI, exports and imports for
both countries were obtained from IFS.

To construct the FLOW variable the data on net capital inflow was taken from Institute for
Economic Research - Halle (IERH) for Poland. However, reliable data on net capital inflow
could not be obtained for Russia. Hence, following Elbadawi (1994), net capital inflow for
Russia is taken to be equal to the difference between import and export. The variable, OPEN
represents a country’s openness to trade. For the construction of the GOV variable, data for
government expenditure for both countries were taken from IFS.³⁷ Data for NEER was obtained
from IFS. Finally, the DCRE variable is constructed from data on domestic credit for both
countries from IERH.

³⁶ However if for any major importer adequate data on either nominal GDP and/or CPI (for converting nominal
GDP to real GDP) could not be obtained then the next major importer was utilized.

³⁷ Monthly observations for GDP for Russia, import and export for both countries, and government expenditure
for Poland, are interpolated from quarterly data.

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