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Productivity Growth and the Real Appreciation of the Accession Countries' Currencies

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  • Kirsten Lommatzsch

    ()

  • Silke Tober

    ()

Abstract

In the process of catch-up growth the Czech Republic, Hungary and Poland have experienced a transition to the production of higher-quality goods. We incorporate this effect in a theoretical model of exchange rates and econometrically estimate its impact on equilibrium real exchange rates. We find support for our hypothesis that productivity increases in industry can be regarded as one source of the observed PPI-based real appreciation of the accession countries’ currencies. The productivity gains experienced during economic catch-up occur as higher-quality goods are produced and imply an increased export capacity as well as import substitution. To some extent real appreciation can therefore be viewed as an equilibrium phenomenon.

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Bibliographic Info

Paper provided by William Davidson Institute at the University of Michigan in its series William Davidson Institute Working Papers Series with number 2004-675.

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Length: 28 pages
Date of creation: 01 Apr 2004
Date of revision:
Handle: RePEc:wdi:papers:2004-675

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Keywords: relative productivity growth; catch-up growth; real exchange rates; transition economies;

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  1. Balázs Égert & Imed Drine & Kirsten Lommatzsch & Christophe Rault, 2002. "The Balassa-Samuelson effect in Central and Eastern Europe: Myth or reality?," William Davidson Institute Working Papers Series 483, William Davidson Institute at the University of Michigan.
  2. 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.
  3. MacDonald, Ronald, 1998. "What determines real exchange rates?: The long and the short of it," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 8(2), pages 117-153, June.
  4. Lommatzsch, Kirsten & Tober, Silke, 2002. "Monetary policy aspects of the enlargement of the Euro area," Research Notes 4, Deutsche Bank Research.
  5. Ray Barrell & Dawn Holland, 2000. "Foreign Direct Investment and Enterprise Restructuring in Central Europe," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 8(2), pages 477-504, July.
  6. Ronald MacDonald & Peter B. Clark, 1998. "Exchange Rates and Economic Fundamentals," IMF Working Papers 98/67, International Monetary Fund.
  7. Coricelli, Fabrizio & Jazbec, Bostjan, 2004. "Real exchange rate dynamics in transition economies," Structural Change and Economic Dynamics, Elsevier, vol. 15(1), pages 83-100, March.
  8. Michael Landesmann & Robert Stehrer, 2002. "The CEECs in the Enlarged Europe: Convergence Patterns, Specialization and Labour Market Implications," wiiw Research Reports 286, The Vienna Institute for International Economic Studies, wiiw.
  9. Baxter, Marianne, 1994. "Real exchange rates and real interest differentials: Have we missed the business-cycle relationship?," Journal of Monetary Economics, Elsevier, vol. 33(1), pages 5-37, February.
  10. MacDonald, Ronald, 2000. "Concepts to Calculate Equilibrium Exchange Rates: An Overview," Discussion Paper Series 1: Economic Studies 2000,03, Deutsche Bundesbank, Research Centre.
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