Exchange rate regimes and the real sector: a sectoral analysis of CEE Countries

Przemyslaw Kowalski (), Wojciech Paczynski and Lukasz Rawdanowicz

Post-Communist Economies, 2003, vol. 15, issue 4, pages 533-555

Abstract: This article analyses the impact of exchange rate regimes on the real sector. While most studies in this field have so far concentrated on aggregate variables, we pursue a sectoral approach distinguishing between the tradable and non-tradable sectors. First, we present a survey of the relevant theoretical and empirical literature. This demonstrates that evaluations of exchange rate regimes and their impact on the real economy are largely dependent on specific assumptions concerning, in particular, the parameters of a utility function, the nature of the price adjustment process and the characteristics of the shocks analysed. Second, we conduct an empirical analysis of the behaviour of the tradable and non-tradable sectors under different exchange rate regimes in seven Central and Eastern European countries. We find no firm evidence of a differential impact of given exchange rate regimes on the dynamics of output and prices in the two sectors. We proffer a conceptual and technical interpretation of this.

Date: 2003
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