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Real Exchange Rates in Small Open OECD and Transition Economies: Comparing Apples with Oranges?

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  • Balazs Egert
  • Kirsten Lommatzsch
  • Amina Lahrèche-Révil

Abstract

We find that productivity gains in tradables cause an appreciation of the real exchange rate via both tradable and nontradable prices in the CEE-5 and have no affect in the Baltic countries, while they lead to a depreciation of the real exchange rate of tradables in OECD economies that overcompensates the appreciation due to nontradable prices. Rising net foreign liabilities lead to a real appreciation in the Baltic countries instead of the expected depreciation found in OECD and CEE-5 countries. These differences are due to the different impact of the fundamentals on the real exchange rate depending on the time horizon studied.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2007/wp-cesifo-2007-02/cesifo1_wp1928.pdf
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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1928.

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Date of creation: 2007
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Handle: RePEc:ces:ceswps:_1928

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Keywords: real exchange rate; equilibrium exchange rate; productivity; tradables; Balassa-Samuelson effect;

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