Real exchange rate dynamics and external balances: Econometric and artificial neural network analyses

We examine the dynamic relationship between the real exchange rate (RER) and external balances using both econometric and artificial neural network (NN) approaches. Our framework synthesizes a vector error correction model (VECM) and an NN model derived from it. Unlike traditional models such as vector autoregression (VAR), our models systematically incorporate economic relationships pertinent to the subject matter. These includes (i) the stock-flow relationship between the stock of net foreign