Productivity Growth and the Real Appreciation of the Accession Countries' Currencies

Kirsten Lommatzsch () and Silke Tober

William Davidson Institute Working Papers Series from William Davidson Institute at the University of Michigan

Abstract: In the process of catch-up growth the Czech Republic, Hungary and Poland have experienced a transition to the production of higher-quality goods. We incorporate this effect in a theoretical model of exchange rates and econometrically estimate its impact on equilibrium real exchange rates. We find support for our hypothesis that productivity increases in industry can be regarded as one source of the observed PPI-based real appreciation of the accession countries’ currencies. The productivity gains experienced during economic catch-up occur as higher-quality goods are produced and imply an increased export capacity as well as import substitution. To some extent real appreciation can therefore be viewed as an equilibrium phenomenon.

Keywords: relative productivity growth; catch-up growth; real exchange rates; transition economies (search for similar items in EconPapers)
JEL-codes: C32 F41 P3 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2004-04-01
New Economics Papers: this item is included in nep-dev, nep-eec, nep-eff, nep-ifn and nep-tra
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