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Exchange Rates in the New EU Accession Countries: What Have We Learned from the Forerunners

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Listed:
  • Ales Bulir
  • Katerina Smidkova

Abstract

Estimation and simulation of sustainable real exchange rates in some of the new EU accession countries point to potential difficulties in sustaining the ERM2 regime if entered too soon and with weak policies. According to the estimates, the Czech, Hungarian, and Polish currencies were overvalued in 2003. Simulations, conditional on large-model macroeconomic projections, suggest that under current policies those currencies would be unlikely to stay within the ERM2 stability corridor during 2004-2010. In-sample simulations for Greece, Portugal, and Spain indicate both a much smaller misalignment of national currencies prior to ERM2, and a more stable path of real exchange rates over the medium term than can be expected for the new accession countries.

Suggested Citation

  • Ales Bulir & Katerina Smidkova, 2004. "Exchange Rates in the New EU Accession Countries: What Have We Learned from the Forerunners," Working Papers 2004/10, Czech National Bank.
  • Handle: RePEc:cnb:wpaper:2004/10
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    More about this item

    Keywords

    ERM2; Foreign direct investment; Sustainable real exchange rates.;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • F47 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Forecasting and Simulation: Models and Applications

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