Productivity, Demand, and Regulated Price Effects Revisited: An Analysis of the Real Bilateral Exchange Rates of Four New EU Member States

Ronald MacDonald and Cezary Wójcik

Emerging Markets Finance and Trade, 2008, vol. 44, issue 3, 48-65

Abstract: This paper examines the behavior of internal price ratios and bilateral real exchange rates of a group of four new EU member states-Estonia, Hungary, Slovakia, and Slovenia. We employ a dynamic ordinary least squares panel estimator to investigate the relative importance of demand and supply influences on the internal and external exchange rates of these countries. Our analysis shows that both supply- and demand-side effects are important, though supply-side effects dominate. The paper also examines the role that administrated or regulated prices and the productivity of the distribution sector play in real exchange rate dynamics. We show that administrated prices have been a powerful force behind price and real exchange developments for our group of accession countries.

Keywords: Economic and Monetary Union (EMU); exchange rates; monetary integration (search for similar items in EconPapers)
Date: 2008
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