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Transition economy convergence in a two-country model: implications for monetary integration

Jan Bruha () and Jiří Podpiera

No 740, Working Paper Series from European Central Bank

Abstract: In this paper we present a two-country dynamic general equilibrium model of ex ante unequally developed countries. The model explains a key feature recently observed in transition economies - the long-run trend real exchange rate appreciation - through investments into quality. Our exchange-rate projections bear important policy implications, which we illustrate on the collision between the price and nominal exchange rate criterion for the European Monetary Union in a set of selected transition economies in Central and Eastern Europe. JEL Classification: E58, F15, F43

Keywords: convergence; Currency area; monetary policy; Two-country modeling (search for similar items in EconPapers)
Date: 2007-03
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