At its meeting l on 10th September 2001, the Monetary Council asked the Staff of the Economics Department to analyse the macroeconomic developments crucial for the fulfilment of the inflation criteria laid down by the Maastricht treaty for Hungary. This paper analyses issues of competitiveness, in addition to estimating the long-run inflation differential between Hungary and the Euroland. Our conceptual framework is the equilibrium exchange rate of the forint. For the analysis of expected real appreciation, we briefly summarise the theoretical concept of equilibrium exchange rate, and the empirical results of research on the subject in relation to developed and transition economies. We analyse the development of the real exchange rate of the forint over the past decade, attempting to give a “guesstimate” of its likely position compared to its equilibrium value, so that we can discuss the implications for competitiveness of this year’s change in the exchange rate regime. Taking into account the results, we present simulations for the size of the equilibrium appreciation under various scenarios.

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