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Current account and real effective exchange rate misalignments in Central Eastern EU countries: An update using the macroeconomic balance approach

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  • Comunale, Mariarosaria

Abstract

We make an assessment of the current account and price competitiveness of the Central Eastern European countries that joined the EU, using data up to 2016. Foreign capital flows, fiscal balance and relative output growth seem to play a crucial role in explaining the current account balance. The real effective exchange rate gaps behave in accord with the current account misalignments, which clearly display cyclical behaviour. When foreign direct investments are introduced as a determinant, the misalignments are larger in boom periods (positive misalignments), whereas the negative misalignments are smaller in magnitude. Overall, the countries have moved closer to their equilibria since 2010.

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  • 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.
  • Handle: RePEc:eee:ecosys:v:42:y:2018:i:3:p:414-436
    DOI: 10.1016/j.ecosys.2017.11.002
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    Keywords

    Real effective exchange rate; Central Eastern European countries; EU new member states; Fundamental effective exchange rate; Current account;

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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