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Labor Productivity and Real Exchange Rate

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  • Boileau Loko
  • Anita Tuladhar
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    Abstract

    This paper seeks to investigate the transmission mechanisms linking productivity to the real exchange rate in the former Yugoslav Republic of Macedonia. At first glance, the stylized facts-low labor productivity growth and a trend real depreciation-suggest that a Balassa- Samuelson effect is in play. We find that the relationship between the two is not a result of the traditional Balassa-Samuelson effect. Instead, the depreciation of the real exchange rate reflects mainly the behavior of prices in the tradable sector. We argue that the depreciating real exchange rate may reflect a prolonged transition associated with slow technological growth and the low quality of the country''s tradable-goods basket.

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 05/113.

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    Length: 21
    Date of creation: 01 Jun 2005
    Date of revision:
    Handle: RePEc:imf:imfwpa:05/113

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    Related research

    Keywords: Productivity; Labor markets; Real effective exchange rates; exchange rate; reer; real effective exchange rate; effective exchange rate; export performance; equilibrium exchange rate; real exchange rate; exchange rates; export markets; export sector; export shares; nominal effective exchange rate; open economy macroeconomics; bilateral exchange rates; nominal bilateral exchange rates; nominal exchange rate; exportable goods; tariff barriers; exchange rate appreciation; real exchange rate changes; nominal exchange rates; exchange rate levels; exchange rate changes; foreign exchange; foreign investment;

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    1. Engel, C., 1996. "Long-Run PPP May Not Hold After All," Working Papers 96-05, University of Washington, Department of Economics.
    2. International Monetary Fund, 2003. "Competitiveness in the Baltics in the Run-Up to EU Accession," IMF Staff Country Reports 03/114, International Monetary Fund.
    3. R. Macdonald & L. Ricci, 2003. "PPP and the Balassa Samuelson Effect: The Role of the DistributionSector," DNB Staff Reports (discontinued) 81, Netherlands Central Bank.
    4. Ronald MacDonald & Luca Antonio Ricci, 2001. "PPP and the Balassa Samuelson Effect," IMF Working Papers 01/38, International Monetary Fund.
    5. Canzoneri, Matthew B. & Cumby, Robert E. & Diba, Behzad, 1999. "Relative labor productivity and the real exchange rate in the long run: evidence for a panel of OECD countries," Journal of International Economics, Elsevier, vol. 47(2), pages 245-266, April.
    6. Piritta Sorsa & Dimitar Chobanov, 2004. "Competitiveness in Bulgaria," IMF Working Papers 04/37, International Monetary Fund.
    7. International Monetary Fund, 2002. "Lithuania," IMF Working Papers 02/127, International Monetary Fund.
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    Cited by:
    1. Eva Gutierrez, 2006. "Export Performance and External Competitiveness in the Former Yugoslav Republic of Macedonia," IMF Working Papers 06/261, International Monetary Fund.
    2. Mirjana Miletić, 2012. "Estimating the Impact of the Balassa-Samuelson Effect in Central and Eastern European Countries: A Revised Analysis of Panel Data Cointegration Tests," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 59(4), pages 475-499, September.
    3. Jane Bogoev & Sultanija Bojceva Terzijan & Balazs Egert & Magdalena Petrovska, 2008. "Real Exchange Rate Dynamics in Macedonia: Old Wisdoms and New Insights," Working Papers 2008-01, National Bank of the Republic of Macedonia.

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