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Beyond Balassa - Samuelson: Real Appreciation in Tradables in Transition Countries

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  • Martin Cincibuch
  • Jiri Podpiera

Abstract

Using the simple arbitrage model, we decompose real appreciation in tradables in three Central European countries between the pricing-to-market component (disparity) and the local relative price component (substitution ratio). Appreciation is only partially explained by local relative prices. The rest is absorbed by disparity, depending on the size of the no-arbitrage band. The observed disparity fluctuates in a wider band for differentiated products than for a commodity like goods.

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Bibliographic Info

Paper provided by Czech National Bank, Research Department in its series Working Papers with number 2004/09.

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Date of creation: Dec 2004
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Handle: RePEc:cnb:wpaper:2004/09

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Keywords: Purchasing power parity; pricing-to-market; transition; real appreciation; exchange rates;

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