Interpreting Real Exchange Rate Movements in Transition Countries

International Monetary Fund

No 2001/056, IMF Working Papers from International Monetary Fund

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: WP; nominal exchange rate; Real exchange rates; transition; Balassa-Samuelson effects; vis-à-vis productivity; exchange rate gap; PPP exchange rate; productivity variable; labor productivity data; Productivity; Exchange rates; Real effective exchange rates; Industrial productivity; Eastern Europe; Baltics (search for similar items in EconPapers)
Pages: 35
Date: 2001-05-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (122)

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