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Beyond Balassa - Samuelson: Real Appreciation in Tradables in Transition Countries

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  • Martin Cincibuch
  • Jiri Podpiera

Abstract

Using the simple arbitrage model, we decompose real appreciation in tradables in three Central European countries between the pricing-to-market component (disparity) and the local relative price component (substitution ratio). Appreciation is only partially explained by local relative prices. The rest is absorbed by disparity, depending on the size of the no-arbitrage band. The observed disparity fluctuates in a wider band for differentiated products than for a commodity like goods.

Suggested Citation

  • Martin Cincibuch & Jiri Podpiera, 2004. "Beyond Balassa - Samuelson: Real Appreciation in Tradables in Transition Countries," Working Papers 2004/09, Czech National Bank.
    • Handle: RePEc:cnb:wpaper:2004/09
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    Cited by:

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    2. Dobrinsky, Rumen, 2006. "Catch-up inflation and nominal convergence: The balancing act for new EU entrants," Economic Systems, Elsevier, vol. 30(4), pages 424-442, December.
    3. Bulir, Ales & Smidkova, Katerina, 2005. "Exchange rates in the new EU accession countries: What have we learned from the forerunners?," Economic Systems, Elsevier, vol. 29(2), pages 163-186, June.
    4. Roman Hotvath, 2005. "Real Equilibrium Exchange Rate Estimates: To What Extent Applicable for Setting the Central Parity?," International Finance 0509006, University Library of Munich, Germany.
    5. Ondrej Schneider & Jan Zapal, 2006. "Fiscal Policy in New EU Member States: Go East, Prudent Man!," Post-Communist Economies, Taylor & Francis Journals, vol. 18(2), pages 139-166.
    6. García Solanes José, 2008. "Real Exchange Rate Appreciation in Central and Eastern European Countries. Why the Balassa-Samuelson Effect Does Not Explain the Whole Story," Working Papers 2010100, Fundacion BBVA / BBVA Foundation.
    7. repec:onb:oenbwp:y::i:106:b:1 is not listed on IDEAS
    8. Balázs Égert & László Halpern & Ronald MacDonald, 2006. "Equilibrium Exchange Rates in Transition Economies: Taking Stock of the Issues," Journal of Economic Surveys, Wiley Blackwell, vol. 20(2), pages 257-324, April.
    9. Luboš Komárek & Martin Motl, 2012. "Behaviorální a fundamentální rovnovážný měnový kurz české koruny [Behavioural and Fundamental Equilibrium Exchange Rate of the Czech Koruna]," Politická ekonomie, Prague University of Economics and Business, vol. 2012(2), pages 147-166.
    10. Bruha, Jan & Podpiera, Jirí, 2011. "The dynamics of economic convergence: The role of alternative investment decisions," Journal of Economic Dynamics and Control, Elsevier, vol. 35(7), pages 1032-1044, July.
    11. Ian Babetskii & Balázs Égert, 2005. "Equilibrium Exchange Rate in the Czech Republic: How Good is the Czech BEER?," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 55(5-6), pages 232-252, May.
    12. García-Solanes, José & Sancho-Portero, F. Israel & Torrejón-Flores, Fernando, 2008. "Beyond the Balassa-Samuelson effect in some new member states of the European Union," Economic Systems, Elsevier, vol. 32(1), pages 17-32, March.
    13. Jan Babecký & Aleš Bulíř & Kateřina šmídková, 2009. "Sustainable real exchange rates in the new EU Member States: Is FDI a mixed blessing?," European Economy - Economic Papers 2008 - 2015 368, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    14. Roman Horváth, 2005. "Real Equilibrium Exchange Rate Estimates: To What Extent Are They Applicable for Setting the Central Parity?," Working Papers IES 75, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised 2005.
    15. Dubravko Mihaljek & Sweta Saxena, 2010. "Wages, productivity and "structural" inflation in emerging market economies," BIS Papers chapters, in: Bank for International Settlements (ed.), Monetary policy and the measurement of inflation: prices, wages and expectations, volume 49, pages 53-75, Bank for International Settlements.
    16. Przystupa, Jan, 2009. "Approaching a problem of the long-run real equilibrium exchange rate of Polish zloty while entering the ERM-2 and Euro zone," MPRA Paper 19549, University Library of Munich, Germany.
    17. Vit Barta, 2005. "Fulfilment of the Maastricht Inflation Criterion by the Czech Republic: Potential Costs and Policy Options," Research and Policy Notes 2005/04, Czech National Bank.
    18. Jiri Podpiera & Marie Rakova, 2006. "Degree of Competition and Export-Production Relative Prices when the Exchange Rate Changes: Evidence from a Panel of Czech Exporting Companies," Working Papers 2006/10, Czech National Bank.
    19. Felix Hüfner & Isabell Koske, 2008. "The Euro Changeover in the Slovak Republic: Implications for Inflation and Interest Rates," OECD Economics Department Working Papers 632, OECD Publishing.
    20. Brůha, Jan & Podpiera, Jiří, 2007. "Transition economy convergence in a two-country model: implications for monetary integration," Working Paper Series 740, European Central Bank.

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    More about this item

    Keywords

    Purchasing power parity; pricing-to-market; transition; real appreciation; exchange rates;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F15 - International Economics - - Trade - - - Economic Integration

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