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Current Account Adjustments and Real Exchange Rates in the European Transition Economies

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  • Mirdala, Rajmund

Abstract

One of the key outcomes of open economy macroeconomics refers to a crucial importance of an investment-saving relation affecting a current account determination. However, despite a relative diversity in exchange rate regimes in European transition economies, there is still a substantial potential to analyze price effects of real exchange rate dynamics on current account adjustments. Rigorous investigation of relative changes in real exchange rates leading paths and associated adjustments in current accounts may reveal causal relationship between real exchange rate dynamics and international competitiveness in order to observe its redistributive effects. This purpose is even more significant provided that economic crisis has intensified cross-country expenditure shifting effects that still provide quite diverse and thus spurious effects on current account adjustments. In the paper we analyze main aspects of current account adjustments in European transition economies. Our main objective is to observe a relationship between real exchange rate dynamics and current account adjustments (in countries with different exchange rate arrangements). From estimated VAR model we calculate responses of the current account to the real exchange rate (REER calculated on CPI and ULC base) shock. To provide more rigorous insight into the problem of the current account adjustments according to real exchange rate dynamics we estimate the model for each particular country employing data for two subsequent periods 2000-2007 and 2000-2012.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 48901.

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Date of creation: May 2013
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Publication status: Published in Journal of Applied Economic Sciences 2.8(2013): pp. 210-227
Handle: RePEc:pra:mprapa:48901

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Keywords: current account adjustments; real exchange rate dynamics; economic growth; economic crisis; vector autoregression; impulse-response function;

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References

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  1. Kosta Josifidis & Jean-Pierre Allegret & Emilija Beker Pucar, 2009. "Monetary and Exchange Rate Regimes Changes: The Cases of Poland, Czech Republic, Slovakia and Republic of Serbia," Post-Print halshs-00404729, HAL.
  2. Lee,J. & Chinn,M.D., 2004. "Current account and real exchange rate dynamics in the G-7 countries," Working papers 11, Wisconsin Madison - Social Systems.
  3. Mirdala, Rajmund, 2013. "Real Output and Prices Adjustments under Different Exchange Rate Regimes," MPRA Paper 46879, University Library of Munich, Germany.
  4. Maurice Obstfeld & Kenneth S. Rogoff, 2005. "Global Current Account Imbalances and Exchange Rate Adjustments," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 36(1), pages 67-146.
  5. Arratibel, Olga & Furceri, Davide & Martin, Reiner & Zdzienicka, Aleksandra, 2011. "The effect of nominal exchange rate volatility on real macroeconomic performance in the CEE countries," Economic Systems, Elsevier, vol. 35(2), pages 261-277, June.
  6. Frait , Jan & Komárek, Luboš, 2001. "REAL Exchange rate trends in transitional countries," The Warwick Economics Research Paper Series (TWERPS) 596, University of Warwick, Department of Economics.
  7. Arghyrou, Michael G & Chortareas, Georgios, 2006. "Current Account Imbalances and Real Exchange Rates in the Euro Area," Cardiff Economics Working Papers E2006/23, Cardiff University, Cardiff Business School, Economics Section.
  8. Mirdala, Rajmund, 2012. "Macroeconomic Aspects of Real Exchange Rate Volatility in the Central European Countries," MPRA Paper 40910, University Library of Munich, Germany.
  9. Monica DAMIAN, 2011. "The Comparative Analysis Of The Monetary Policy Strategies Before The Adoption Of The Euro Currency And The Impact Upon The Maastricht Criteria," Journal of Applied Economic Sciences, Spiru Haret University, Faculty of Financial Management and Accounting Craiova, vol. 6(3(17)/ Fa), pages 222-229.
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Cited by:
  1. Mirdala, Rajmund, 2013. "Fiscal Imbalances and Current Account Adjustments in the European Transition Economies," MPRA Paper 50362, University Library of Munich, Germany.

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