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Would Fast Sailing Towards the Euro Be Smooth?: What Fundamental Real Exchange Rates Tell Us About Acceding Economies

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Author Info
Katerina Smidkova (Czech National Bank)
Ales Bulir (International Monetary Fund)

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Abstract

Computed fundamental real exchange rates in four acceding countries point out to difficulties in entering the ERM II too soon after the EU entry. Computations suggest that it is unlikely for the Czech, Hungarian and Polish economies to maintain low inflation during 2004-2010, and at the same time, to keep their currencies within the ERM II. In addition, those currencies were overvalued in 2003. Moreover, experience of Greece, Portugal, and Spain – viewed through the fundamental real exchange rates goggles - indicate both more stable paths of real exchange rates as well as smaller currency misalignments prior to the euro adoption than what can be expected from the acceding countries in the forthcoming years. If acceding countries sail too fast towards the euro, their sailing may not be as smooth as the one of frontrunners.

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Paper provided by EconWPA in its series Macroeconomics with number 0408002.

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Length: 31 pages
Date of creation: 06 Aug 2004
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Handle: RePEc:wpa:wuwpma:0408002

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Keywords: Fundamental real exchange rates; Foreign direct investment; Euro; Acceding economies;

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E - Macroeconomics and Monetary Economics

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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Égert, Balázs & Halpern, László, 2005. "Equilibrium Exchange Rates in Central and Eastern Europe: A Meta-Regression Analysis," CEPR Discussion Papers 4869, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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