Current Account Adjustments and Real Exchange Rates in the European Transition Economies

Rajmund Mirdala ()

MPRA Paper from University Library of Munich, Germany

Abstract: One of the key outcomes of open economy macroeconomics refers to a crucial importance of an investment-saving relation affecting a current account determination. However, despite a relative diversity in exchange rate regimes in European transition economies, there is still a substantial potential to analyze price effects of real exchange rate dynamics on current account adjustments. Rigorous investigation of relative changes in real exchange rates leading paths and associated adjustments in current accounts may reveal causal relationship between real exchange rate dynamics and international competitiveness in order to observe its redistributive effects. This purpose is even more significant provided that economic crisis has intensified cross-country expenditure shifting effects that still provide quite diverse and thus spurious effects on current account adjustments. In the paper we analyze main aspects of current account adjustments in European transition economies. Our main objective is to observe a relationship between real exchange rate dynamics and current account adjustments (in countries with different exchange rate arrangements). From estimated VAR model we calculate responses of the current account to the real exchange rate (REER calculated on CPI and ULC base) shock. To provide more rigorous insight into the problem of the current account adjustments according to real exchange rate dynamics we estimate the model for each particular country employing data for two subsequent periods 2000-2007 and 2000-2012.

Keywords: current account adjustments; real exchange rate dynamics; economic growth; economic crisis; vector autoregression; impulse-response function (search for similar items in EconPapers)
JEL-codes: C32 F32 F41 (search for similar items in EconPapers)
Date: 2013-05
New Economics Papers: this item is included in nep-eec, nep-mon, nep-opm and nep-tra
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Published in Journal of Applied Economic Sciences 2.8(2013): pp. 210-227

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:48901

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