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Long‐run determinants and misalignments of the real effective exchange rate in the EU

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  • Mariarosaria Comunale

Abstract

This paper explores the role of fundamentals, included in the transfer effect theory, in explaining medium/long‐run movements in the real effective exchange rates in the EU over the period 1994–2012, together with an analysis of the misalignments. We use heterogeneous, cointegrated panel frameworks in static and a dynamic setup. We find that the coefficients of the determinants are extremely different across groups and the transfer theory does not always hold. The core countries have been undervalued for almost the whole period; the periphery has experienced high rates. The misalignments in the CEECs are still wide and reflect the catching‐up process.

Suggested Citation

  • Mariarosaria Comunale, 2019. "Long‐run determinants and misalignments of the real effective exchange rate in the EU," Scottish Journal of Political Economy, Scottish Economic Society, vol. 66(5), pages 649-672, November.
    • Handle: RePEc:bla:scotjp:v:66:y:2019:i:5:p:649-672
    DOI: 10.1111/sjpe.12206
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    Cited by:

    1. Cuestas, Juan Carlos & Monfort, Mercedes & Ordóñez, Javier, 2024. "Have real exchange rates and competitiveness in Central and Eastern Europe fundamentally changed?," International Review of Economics & Finance, Elsevier, vol. 89(PA), pages 618-628.
    2. Silvia Calò & Mariarosaria Comunale, 2019. "Real Effective Exchange Rates determinants and growth: lessons from Italian regions," CEIS Research Paper 456, Tor Vergata University, CEIS, revised 27 Mar 2019.
    3. Mariarosaria Comunale, 2016. "A Closer Look at EU Current Accounts," CEIS Research Paper 393, Tor Vergata University, CEIS, revised 11 Aug 2016.
    4. Comunale, Mariarosaria, 2022. "A panel VAR analysis of macro-financial imbalances in the EU," Journal of International Money and Finance, Elsevier, vol. 121(C).
    5. Comunale, Mariarosaria, 2017. "Dutch disease, real effective exchange rate misalignments and their effect on GDP growth in EU," Journal of International Money and Finance, Elsevier, vol. 73(PB), pages 350-370.
    6. repec:bof:bofitp:urn:nbn:fi:bof-201510131420 is not listed on IDEAS
    7. Bošnjak Mile & Kordić Gordana & Novak Ivan, 2021. "Real Effective Exchange Rate and Industrial Productivity in Croatia: Wavelet Coherence Analysis," South East European Journal of Economics and Business, Sciendo, vol. 16(1), pages 30-37, June.
    8. Michael Fidora & Claire Giordano & Martin Schmitz, 2021. "Real Exchange Rate Misalignments in the Euro Area," Open Economies Review, Springer, vol. 32(1), pages 71-107, February.
    9. Mariarosaria Comunale, 2015. "Current Account and Reer Misalignments in Central Eastern EU Countries: an Update Using the Macroeconomic Balance Approach," Bank of Lithuania Working Paper Series 20, Bank of Lithuania.
    10. Joscha Beckmann & Mariarosaria Comunale, 2020. "Exchange rate fluctuations and the financial channel in emerging economies," Bank of Lithuania Working Paper Series 83, Bank of Lithuania.
    11. Beirne, John & Renzhi, Nuobu & Panthi, Pradeep, 2024. "Exchange rate pass-through in emerging Asia and exposure to external shocks," Economic Analysis and Policy, Elsevier, vol. 81(C), pages 1608-1624.
    12. Joscha Beckmann & Mariarosaria Comunale, 2020. "Exchange rate fluctuations and the financial channel in emerging economies," Bank of Lithuania Working Paper Series 83, Bank of Lithuania.
    13. Comunale, Mariarosaria, 2018. "Current account and real effective exchange rate misalignments in Central Eastern EU countries: An update using the macroeconomic balance approach," Economic Systems, Elsevier, vol. 42(3), pages 414-436.
    14. Mariarosaria Comunale & Jonas Striaukas, 2017. "Unconventional Monetary Policy: Interest Rates and Low Inflation: A Review of Literature and Methods," CAMA Working Papers 2017-29, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    15. Mariarosaria Comunale, 2015. "Current Account and Reer Misalignments in Central Eastern EU Countries: an Update Using the Macroeconomic Balance Approach," Bank of Lithuania Working Paper Series 20, Bank of Lithuania.
    16. Gordana Kordic, 2015. "Post-Transition Monetary and Exchange Rate Policies: Dilemmas on Eurozone membership in terms of Global Recession," MIC 2015: Managing Sustainable Growth; Proceedings of the Joint International Conference, Portorož, Slovenia, 28–30 May 2015,, University of Primorska, Faculty of Management Koper.
    17. Claire Giordano, 2018. "Price and cost competitiveness misalignments of the euro area and of its main economies according to a quarterly BEER model, 1999-2017," Questioni di Economia e Finanza (Occasional Papers) 444, Bank of Italy, Economic Research and International Relations Area.

    More about this item

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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