EconPapers    
Economics at your fingertips  
 

The Real Exchange Rate in Transition Economies

C Grafe and Charles Wyplosz ()

CEP Discussion Papers from Centre for Economic Performance, LSE

Abstract: Real exchange rates appear to present a specific behaviour in the early phase of transition: they are largely unaffected by nominal exchange rate movements and exibit trend appreciation. The model presented here describes the transition process as the emergence of two new (traded and non-traded good) sectors and the decline of an inefficient and subsidised state sector. The absence of financial markets means that firms accumulate capital through retained earnings. Labour markets are imperfect giving rise to a wage gap. The model shows that the real exchange rate plays the crucial role of determining real wages. Through real wages it sets the pace for the development of the new sectors as workers are attracted out of the state sector. The link between growth and real appreciation differs from the usual Balassa Samuelson effect. The paper also explores the role of labour market distortions and foreign financing.

Date: 1998-07
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed

Downloads: (external link)
http://cep.lse.ac.uk/pubs/download/DP0395.pdf (application/pdf)

Related works:
Working Paper: The real exchange rate in transition economies (1998) Downloads
Working Paper: The Real Exchange Rate in Transition Economies (1997) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cep:cepdps:dp0395

Access Statistics for this paper

More papers in CEP Discussion Papers from Centre for Economic Performance, LSE
Bibliographic data for series maintained by ().

 
Page updated 2019-12-07
Handle: RePEc:cep:cepdps:dp0395