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Reasons for real appreciation in Central Europe

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  • Brandmeier, Michael

Abstract

The real economic effects of the considerably high appreciation in Central European Economies (CEE) are controversially disputed in the eve of the European Monetary Union (EMU) entry of several CEE economies. The Balassa-Samuelson-effect was made responsible for the expectation of higher inflation rates in CEE than in the EMU in the next years. Higher inflation rates will deteriorate the price competitiveness of the export sectors in the CEE countries because of real appreciation. This paper focuses on the effects of labour productivity differences in several industrial and service sectors on the consumer prices. Labour productivity changes are affected by the technology impact on labour demand and by the relative wage increases following from tensions of regional labour markets because of rising prices and skilled labour shortage. Real appreciation is determined by labour productivity differences and by capital good imports. We conclude that the negative coherence between real appreciation and the endangered price competitiveness of the export sectors in CEE has to be taken into account, unless the negative experience of loss of competitiveness because of sudden real appreciation in Eastern Germany will take place on a large scale in the eastern part of the enlarged euro area.

Suggested Citation

  • Brandmeier, Michael, 2006. "Reasons for real appreciation in Central Europe," University of Göttingen Working Papers in Economics 55, University of Goettingen, Department of Economics.
    • Handle: RePEc:zbw:cegedp:55
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    2. Festic, Mejra & Kavkler, Alenka, 2012. "The Roots of the Banking Crisis in the New EU Member States: A Panel Regression Approach," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(1), pages 20-40, March.
    3. Mejra Festić & Dejan Romih, 2008. "Cyclicality of the banking sector performance and macro environment in the Czech republic, Slovakia and Slovenia," Prague Economic Papers, Prague University of Economics and Business, vol. 2008(2), pages 99-117.
    4. Alenka Kavkler & Mejra Festić, 2010. "The Trade Deficit and Banking Sector Results in Romania and Bulgaria," The AMFITEATRU ECONOMIC journal, Academy of Economic Studies - Bucharest, Romania, vol. 12(27), pages 199-213, February.
    5. Mirjana Miletić, 2012. "Estimating the Impact of the Balassa-Samuelson Effect in Central and Eastern European Countries: A Revised Analysis of Panel Data Cointegration Tests," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 59(4), pages 475-499, September.
    6. Mejra Festić & Sebastijan Repina & Alenka Kavkler, 2009. "The overheating of five EU new member states and cyclicality of systemic risk in the banking sector," Journal of Business Economics and Management, Taylor & Francis Journals, vol. 10(3), pages 219-232, May.

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    More about this item

    Keywords

    European Monetary Union; inflation differences; Balassa-Samuelson-effect; Central and Eastern Europe;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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