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Determinants of Real Exchange Rate Fluctuations in Hungary

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Author Info
Zoltán M. Jakab () (Magyar Nemzeti Bank)
Mihály András Kovács () (Magyar Nemzeti Bank)

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Abstract

This paper investigates the different sources of real exchange rate fluctuations in Hungary. We consider the effect of tradable pricing behavior and nominal rigidities in tradable real-exchange rate movements, and investigate the importance of relative productivity changes between the tradable and nontradable sector in relative price (nontradable/tradable) adjustments. We formulate a policy reaction function to separate the effect of tradable pricing shocks from policy shocks. The framework we use is a two sector open economy real exchange rate model. Its contemporaneous structure is used for the identification of structural shocks. Since the effect of policy shocks on tradable real exchange rate was not significant, our results suggest that nominal rigidities did not play an important role during the period under consideration. The evolution of nontradable prices and relative (nontradable/tradable) prices were well explained by nontradable output shocks. Thus, the Balassa-Samuelson-effect seems to have been at work in Hungary during the first eight years of transition.

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Paper provided by Magyar Nemzeti Bank (The Central Bank of Hungary) in its series MNB Working Papers with number 1999/6.

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Length: 29 pages
Date of creation: 1999
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Handle: RePEc:mnb:wpaper:1999/6

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  1. Christoph Fischer, 2004. "Real currency appreciation in accession countries: Balassa-Samuelson and investment demand," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 140(2), pages 179-210, June. [Downloadable!] (restricted)
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  2. Jaanus Raim, 2004. "The Alternative to the Existing System of the Concepts about Purchasing Power Parity Deviations . Derived from the Estonian Experience," Working Papers 115, School of Economics and Business Administration, Tallinn University of Technology. [Downloadable!]
  3. Buiter, Willem H & Grafe, Clemens, 2002. "Anchor, Float or Abandon Ship: Exchange Rate Regimes for Accession Countries," CEPR Discussion Papers 3184, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  4. Francisco Maeso-Fernandez & Chiara Osbat & Bernd Schnatz, 2004. "Towards the estimation of equilibrium exchange rates for CEE acceding countries: methodological issues and a panel cointegration perspective," Working Paper Series 353, European Central Bank. [Downloadable!]
  5. Paul Cavelaars, 2002. "The Timing of EU Expansion and the Real Exchange Rate," MEB Series (discontinued) 2002-3, Netherlands Central Bank, Monetary and Economic Policy Department. [Downloadable!]
  6. Broeck, Mark De & Sløk, Torsten, 2001. "Interpreting real exchange rate movements in transition countries," BOFIT Discussion Papers 7/2001, Bank of Finland, Institute for Economies in Transition. [Downloadable!]
    Other versions:
  7. Peter Doyle & G. Jiang & Louis Kuijs, 2001. "Real Convergence to EU Income Levels: Central Europe from 1990 to the Long Term," IMF Working Papers 01/146, International Monetary Fund. [Downloadable!]
  8. P.A.D. Cavelaars, 2003. "The Timing of EU Expansion and the Real Exchange Rate," DNB Staff Reports (discontinued) 89, Netherlands Central Bank. [Downloadable!]
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