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Real exchange rate misalignments in CEECs: Have they hindered growth?

Juan Carlos Cuestas, Estefanía Mourelle and Paulo Regis
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Juan Carlos Cuestas: Eesti Pank
Estefanía Mourelle: Universidade da Coruña

Empirica, 2020, vol. 47, issue 4, No 2, 733-756

Abstract: Abstract We study the impact of exchange rate misalignment on economic activity in nine Central and Eastern European economies. Exchange rate misalignments are computed from country-specific long-run exchange rate relationships with determinants suggested by open macroeconomic models such as interest rate differentials or the Balassa–Samuelson effect. There was a clear reduction in misalignments, but this has been reversed to some extent after 2008. Exchange rate overvaluation has a negative impact on economic activity. The effect of misalignments on economic activity seems to be nonlinear, as overvaluation has a stronger effect than undervaluation. Other factors of economic activity, including institutions, also show nonlinear effects.

Keywords: Real exchange rate misalignments; Growth; Central and Eastern European countries; Panel smooth transition regression (search for similar items in EconPapers)
JEL-codes: O11 F41 F15 (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1007/s10663-019-09454-5

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