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Exchange rate regimes and the real sector: a sectoral analysis of CEE Countries

  • Przemek Kowalski
  • Wojciech Paczynski
  • Lukasz Rawdanowicz

This article analyses the impact of exchange rate regimes on the real sector. While most studies in this field have so far concentrated on aggregate variables, we pursue a sectoral approach distinguishing between the tradable and non-tradable sectors. First, we present a survey of the relevant theoretical and empirical literature. This demonstrates that evaluations of exchange rate regimes and their impact on the real economy are largely dependent on specific assumptions concerning, in particular, the parameters of a utility function, the nature of the price adjustment process and the characteristics of the shocks analysed. Second, we conduct an empirical analysis of the behaviour of the tradable and non-tradable sectors under different exchange rate regimes in seven Central and Eastern European countries. We find no firm evidence of a differential impact of given exchange rate regimes on the dynamics of output and prices in the two sectors. We proffer a conceptual and technical interpretation of this.

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Article provided by Taylor & Francis Journals in its journal Post-Communist Economies.

Volume (Year): 15 (2003)
Issue (Month): 4 ()
Pages: 533-555

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Handle: RePEc:taf:pocoec:v:15:y:2003:i:4:p:533-555
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  1. Peter Pedroni, 1999. "Critical Values for Cointegration Tests in Heterogeneous Panels with Multiple Regressors," Department of Economics Working Papers 2000-02, Department of Economics, Williams College.
  2. Lane, Philip R., 2001. "The new open economy macroeconomics: a survey," Journal of International Economics, Elsevier, vol. 54(2), pages 235-266, August.
  3. Devereux, Michael B & Lane, Philip R., 2001. "Exchange Rates and Monetary Policy in Emerging Market Economies," CEPR Discussion Papers 2874, C.E.P.R. Discussion Papers.
  4. Ramana Ramaswamy & Torsten Sløk, 1997. "The Real Effects of Monetary Policy in the European Union: What Are the Differences?," IMF Working Papers 97/160, International Monetary Fund.
  5. Leland B. Yeager, 2000. "Exchange Rates between What Sorts of Currencies?," Cato Journal, Cato Journal, Cato Institute, vol. 20(1), Spring/Su.
  6. Robert P. Flood & Andrew K. Rose, 1993. "Fixing Exchange Rates: A Virtual Quest for Fundamentals," NBER Working Papers 4503, National Bureau of Economic Research, Inc.
  7. Hau, Harald, 2000. "Real Exchange Rate Volatility and Economic Openness: Theory and Evidence," CEPR Discussion Papers 2356, C.E.P.R. Discussion Papers.
  8. Lucio Vinhas de Souza, 2002. "Integrated monetary and exchange rate frameworks: are there empirical differences?," Bank of Estonia Working Papers 2002-2, Bank of Estonia, revised 12 Oct 2002.
  9. Philip R. Lane & Giovanni Ganelli, 2002. "Dynamic General Equilibrium Analysis: The Open Economy Dimension," Trinity Economics Papers 200212, Trinity College Dublin, Department of Economics.
  10. Luca Dedola & Sylvain Leduc, 2002. "Why are business cycles alike across exchange-rate regimes?," Working Papers 02-11, Federal Reserve Bank of Philadelphia.
  11. Dornbusch, Rudiger, 1976. "Expectations and Exchange Rate Dynamics," Journal of Political Economy, University of Chicago Press, vol. 84(6), pages 1161-76, December.
  12. Stanley Fischer, 2001. "Exchange Rate Regimes: Is the Bipolar View Correct?," Journal of Economic Perspectives, American Economic Association, vol. 15(2), pages 3-24, Spring.
  13. Guillermo A. Calvo & Carmen M. Reinhart, 2002. "Fear Of Floating," The Quarterly Journal of Economics, MIT Press, vol. 117(2), pages 379-408, May.
  14. Levy-Yeyati, Eduardo & Sturzenegger, Federico, 2005. "Classifying exchange rate regimes: Deeds vs. words," European Economic Review, Elsevier, vol. 49(6), pages 1603-1635, August.
  15. Baxter, Marianne & Stockman, Alan C., 1989. "Business cycles and the exchange-rate regime : Some international evidence," Journal of Monetary Economics, Elsevier, vol. 23(3), pages 377-400, May.
  16. Cedric Tille, 2002. "How valuable is exchange rate flexibility? Optimal monetary policy under sectoral shocks," Staff Reports 147, Federal Reserve Bank of New York.
  17. Hau, Harald, 2000. "Exchange rate determination: The role of factor price rigidities and nontradeables," Journal of International Economics, Elsevier, vol. 50(2), pages 421-447, April.
  18. Vivek H. Dehejia & Nicholas Rowe, 1999. "Macroeconomic Stabilisation: Fixed Exchange Rates vs Inflation Targeting vs Price Level Targeting," Carleton Economic Papers 99-15, Carleton University, Department of Economics, revised 22 Mar 2000.
  19. repec:cto:journl:v:20:y:2000:i:1:p:115-122 is not listed on IDEAS
  20. Stockman, Alan C., 1999. "Choosing an exchange-rate system," Journal of Banking & Finance, Elsevier, vol. 23(10), pages 1483-1498, October.
  21. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
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