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Real currency appreciation in accession countries: Balassa-Samuelson and investment demand

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  • Fischer, Christoph

Abstract

The Balassa-Samuelson effect is usually seen as the prime explanation of the continuous real appreciation of central and east European (CEE) transition countries' currencies against their western counterparts. The response of a small country's real exchange rate to various shocks is derived in a simple model. It is shown that productivity shocks work not only through a Balassa-type supply channel but also through an investment demand channel. Therefore, empirical evidence apparently in favour of Balassa-Samuelson effects may require a re-interpretation. The model is estimated for a panel of CEE countries. The results are consistent with the model, plausibly explain the observed real appreciation and support the existence of the proposed investment demand channel. -- Die fortdauernde reale Aufwertung der Währungen mittel- und osteuropäischer Transformationsländer gegenüber den Währungen ihrer westlichen Partnerländer wird in der Regel vornehmlich auf den Balassa-Samuelson-Effekt zurückgeführt. Die Reaktion des realen Wechselkurses eines kleinen Landes auf verschiedene Schocks wird in einem einfachen Modell hergeleitet. Es wird gezeigt, dass Produktivitätsschocks ihre Wirkung nicht nur über einen angebotsseitigen Kanal im Sinne von Balassa und Samuelson sondern auch über einen Investitionskanal entfalten. Studien, die den Balassa-Samuelson-Effekt empirisch zu belegen scheinen, müssen deshalb möglicherweise neu interpretiert werden. Das Modell wird für ein Panel von mittel- und osteuropäischen Ländern geschätzt. Die Schätzergebnisse stehen mit dem Modell im Einklang, können die beobachtete reale Aufwertung plausibel erklären und deuten auf die Existenz des hergeleiteten Investitionskanals hin.

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Bibliographic Info

Paper provided by Deutsche Bundesbank, Research Centre in its series Discussion Paper Series 1: Economic Studies with number 2002,19.

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Date of creation: 2002
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Handle: RePEc:zbw:bubdp1:4184

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Keywords: real exchange rate; Balassa-Samuelson effect; transition economies; panel;

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