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The components of the real exchange rate in Hungary


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  • Mihály András Kovács

    (Magyar Nemzeti Bank)

  • András Simon

    (Magyar Nemzeti Bank (at the time of writing the study))

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    This paper provides a statistical analysis of the components of real exchange rate in Hungary for the period 1991-1996. The real exchange rate is decomposed into a tradable and a nontradable rate. The following main conclusions are valid: 1. The Balassa-Samuelson effect, which presumes a real appreciation when productivity in the tradable sector grows faster than in the nontradable sector, is markedly substantiated by the data for Hungary. 2. The homogeneity assumption of the traded sector is not justified by the data. The traded sector defined by the usual statistical terms does not indicate PPP to hold. 3. The relative (common currency) price of the traded sector shows fluctuations driven by changes in the nominal exchange rate. 4. Fluctuations in the relative (common currency) price of the traded sector are larger than fluctuations of relative prices of nontradables in terms of tradables. In other words prices of the traded and non-traded sectors behave similarly to nominal exchange rate shocks: they have similar inertia. 5. A summary conclusion comprising findings of 1-4: for Hungarian data the definition of statistical categories of trading and non-trading sectors are useful in separating industries according to their rate of technological change, but it is much less helpful in separating good substitutes from poor substitutes for internationally traded goods. In section 1 we describe the way we decomposed the real exchange rate. In section 2 we try to explain the determinants of the components, in section 3 we try to arrive to a quantification of the rate of change of the equilibrium real exchange rate in Hungary.

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    Bibliographic Info

    Paper provided by Magyar Nemzeti Bank (the central bank of Hungary) in its series MNB Working Papers with number 1998/3.

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    Length: 19 pages
    Date of creation: 1998
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    Handle: RePEc:mnb:wpaper:1998/3

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    Cited by:
    1. Balázs Égert & László Halpern & Ronald MacDonald, 2005. "Equilibrium Exchange Rates in T ransition Economies: T aking Stock of the Issues," Working Papers 106, Oesterreichische Nationalbank (Austrian Central Bank).
    2. Sándor Valkovszky & János Vincze, 2000. "Estimates of and Problems with Core Inflation in Hungary," MNB Working Papers 2000/2, Magyar Nemzeti Bank (the central bank of Hungary).
    3. Egert, Balazs, 2002. "Estimating the impact of the Balassa-Samuelson effect on inflation and the real exchange rate during the transition," Economic Systems, Elsevier, vol. 26(1), pages 1-16, April.
    4. Oomes, Nienke, 2005. "Maintaining competitiveness under equilibrium real appreciation: The case of Slovakia," Economic Systems, Elsevier, vol. 29(2), pages 187-204, June.
    5. Arratibel, Olga & Rodriguez-Palenzuela, Diego & Thimann, Christian, 2002. "Inflation dynamics and dual inflation in accession countries: a 'New Keynesian' perspective," Working Paper Series 0132, European Central Bank.
    6. Georgi Chukalev, 2002. "The Balassa-Samuelson Effect on the Bulgarian Economy," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 2, pages 58-87.
    7. Fabio M. Natalucci & Federico Ravenna, 2002. "The road to adopting the euro: monetary policy and exchange rate regimes in EU candidate countries," International Finance Discussion Papers 741, Board of Governors of the Federal Reserve System (U.S.).
    8. 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.
    9. Nienke Oomes, 2005. "Maintaining Competitiveness Under Equilibrium Real Appreciation," IMF Working Papers 05/65, International Monetary Fund.


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