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Transition economy convergence in a two-country model: implications for monetary integration

  • Bruha, Jan
  • Podpiera, Jirí

In this paper we present a two-country dynamic general equilibrium model of ex ante unequally developed countries. The model explains a key feature recently observed in transition economies – the long-run trend real exchange rate appreciation – through investments into quality. Our exchange-rate projections bear important policy implications, which we illustrate on the collision between the price and nominal exchange rate criterion for the European Monetary Union in a set of selected transition economies in Central and Eastern Europe. JEL Classification: E58, F15, F43

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Paper provided by European Central Bank in its series Working Paper Series with number 0740.

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Date of creation: Mar 2007
Date of revision:
Handle: RePEc:ecb:ecbwps:20070740
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  28. Alwyn Young, 1998. "Growth without Scale Effects," Journal of Political Economy, University of Chicago Press, vol. 106(1), pages 41-63, February.
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