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Real Exchange Rates in Small Open OECD and Transition Economies: Comparing Apples with Oranges?

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  • Balazs Egert
  • Kirsten Lommatzsch
  • Amina Lahrèche-Révil

Abstract

We find that productivity gains in tradables cause an appreciation of the real exchange rate via both tradable and nontradable prices in the CEE-5 and have no affect in the Baltic countries, while they lead to a depreciation of the real exchange rate of tradables in OECD economies that overcompensates the appreciation due to nontradable prices. Rising net foreign liabilities lead to a real appreciation in the Baltic countries instead of the expected depreciation found in OECD and CEE-5 countries. These differences are due to the different impact of the fundamentals on the real exchange rate depending on the time horizon studied.

Suggested Citation

  • Balazs Egert & Kirsten Lommatzsch & Amina Lahrèche-Révil, 2007. "Real Exchange Rates in Small Open OECD and Transition Economies: Comparing Apples with Oranges?," CESifo Working Paper Series 1928, CESifo Group Munich.
  • Handle: RePEc:ces:ceswps:_1928
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    References listed on IDEAS

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    More about this item

    Keywords

    real exchange rate; equilibrium exchange rate; productivity; tradables; Balassa-Samuelson effect;

    JEL classification:

    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • P17 - Economic Systems - - Capitalist Systems - - - Performance and Prospects

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