BOFIT Discussion Papers, Institute for Economies in Transition, Bank of Finland
No 7/2001:
Interpreting real exchange rate movements in transition countries
Mark De Broeck ()
and Torsten Sløk ()
Abstract: Several transition countries have experienced strong real
exchange rate appreciations. This paper tests the hypothesis that these
appreciations reflect underlying productivity gains in the tradable sector.
Using panel data over the period 1993–98, the results show clear evidence
of productivity-driven exchange rate movements in the central and eastern
European and Baltic countries. Transition countries, particularly the EU
accession countries that have begun to catch up, can expect to experience
further productivity-driven real exchange rate appreciations. Evidence from
a large cross-section of non-transition countries indicates that catching
up by one percent will be associated with a 0.4 percent real
appreciation.
Keywords: real exchange rates; transition; Balassa-Samuelson effects; (follow links to similar papers)
JEL-Codes: F30; G14; G15; P34; (follow links to similar papers)
46 pages, July 26, 2001
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