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Exchange Rates in the New EU Accession Countries: What Have We Learned from the Forerunners

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  • Ales Bulir
  • Katerina Smidkova

Abstract

Estimation and simulation of sustainable real exchange rates in some of the new EU accession countries point to potential difficulties in sustaining the ERM2 regime if entered too soon and with weak policies. According to the estimates, the Czech, Hungarian, and Polish currencies were overvalued in 2003. Simulations, conditional on large-model macroeconomic projections, suggest that under current policies those currencies would be unlikely to stay within the ERM2 stability corridor during 2004-2010. In-sample simulations for Greece, Portugal, and Spain indicate both a much smaller misalignment of national currencies prior to ERM2, and a more stable path of real exchange rates over the medium term than can be expected for the new accession countries.

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Paper provided by Czech National Bank, Research Department in its series Working Papers with number 2004/10.

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Date of creation: Dec 2004
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Handle: RePEc:cnb:wpaper:2004/10

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Keywords: ERM2; Foreign direct investment; Sustainable real exchange rates.;

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Citations

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Cited by:
  1. repec:cml:incocp:1-09 is not listed on IDEAS
  2. Ian Babetskii & Balázs Égert, 2005. "Equilibrium Exchange Rate in the Czech Republic: How Good is the Czech BEER?," William Davidson Institute Working Papers Series wp781, William Davidson Institute at the University of Michigan.
  3. Alena Bicakova & Kamil Dybczak & Ales Krejdl & Jiri Slacalek & Michal Slavik, 2007. "CNB Economic Research Bulletin: Fiscal Policy and its Sustainability," Occasional Publications - Edited Volumes, Czech National Bank, Research Department, Czech National Bank, Research Department, edition 2, volume 5, number rb05/2 edited by Ian Babetskii & Vladimir Bezdek, August.
  4. Rubaszek, Michal & Rawdanowicz, Lukasz, 2009. "Economic convergence and the fundamental equilibrium exchange rate in central and eastern Europe," International Review of Financial Analysis, Elsevier, vol. 18(5), pages 277-284, December.
  5. Jan Babecky & Ales Bulir & Katerina Smidkova, 2011. "Sustainable Real Exchange Rates in the New EU Member States: What Did the Great Recession Change?," Working Papers, Czech National Bank, Research Department 2011/01, Czech National Bank, Research Department.
  6. Candelon, Bertrand & Kool, Clemens & Raabe, Katharina & van Veen, Tom, 2007. "Long-run real exchange rate determinants: Evidence from eight new EU member states, 1993-2003," Journal of Comparative Economics, Elsevier, vol. 35(1), pages 87-107, March.
  7. Rubaszek, Michał, 2008. "Economic convergence and the fundamental equilibrium exchange rate in Poland," MPRA Paper 12910, University Library of Munich, Germany.
  8. Nikolaos Giannellis & Athanasios Papadopoulos, 2007. "Estimating the Equilibrium Effective Exchange Rate for Potential EMU Members," Open Economies Review, Springer, vol. 18(3), pages 307-326, July.
  9. Vit Barta, 2005. "Fulfilment of the Maastricht Inflation Criterion by the Czech Republic: Potential Costs and Policy Options," Research and Policy Notes 2005/04, Czech National Bank, Research Department.
  10. Kateřina Šmídková & Aleš Bulíř, 2005. "Would Fast Sailing Towards the Euro Be Smooth? What Fundamental Real Exchange Rates Tell Us," Prague Economic Papers, University of Economics, Prague, vol. 2005(4), pages 291-316.
  11. Ian Babetskii & Ales Bulir & Fabrizio Coricelli & Jan Filacek & Michal Franta & Roman Horvath & Branislav Saxa & Katerina Smidkova, 2008. "CNB Economic Research Bulletin: Ten Years of Inflation Targeting," Occasional Publications - Edited Volumes, Czech National Bank, Research Department, Czech National Bank, Research Department, edition 1, volume 6, number rb06/1 edited by Ian Babetskii & Katerina Smidkova, August.
  12. Tomas Holub, 2004. "Foreign Exchange Interventions Under Inflation Targeting: The Czech Experience," Research and Policy Notes 2004/01, Czech National Bank, Research Department.
  13. Marques, Luis B, 2007. "The Costs to Consumers of a Depreciated Conversion Rate to the Euro," MPRA Paper 5723, University Library of Munich, Germany.
  14. Ales Bulir & Jaromír Hurník, 2006. "The Maastricht Inflation Criterion," IMF Working Papers 06/154, International Monetary Fund.
  15. Jan Babecky & Oxana Babetskaia-Kukharchuk & Kamil Galuscak & Dana Hajkova & Jaroslav Hermanek & Tomas Holub & Roman Horvath & Petr Jakubik & Lubos Komarek & Zlatuse Komarkova & Petr Kral & Filip Novot, 2008. "Analyses of the Czech Republic's Current Economic Alignment with the Euro Area 2008," Occasional Publications - Edited Volumes, Czech National Bank, Research Department, Czech National Bank, Research Department, number as08 edited by Dana Hajkova, August.

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