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Real Exchange Rate in Latvia (1994-2001)

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Listed author(s):
  • Martins Bitans

    (Bank of Latvia)

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    Abstract

    The analysis of the exchange rate in Latvia presented in this publication covers the period from 1994 until 2001. The analysis has been based on two commonly used methods: the single equation approach and macroeconomic balance approach. The existing fundamental variables in the economy warrant the exchange rate that is undervalued relative to its equilibrium. Therefore, the current exchange rate in Latvia generally corresponds to the current stage of economic development. The real appreciation of the exchange rate with respect to West European countries is in line with the appreciation of the trend exchange rate, which is driven mainly by rising productivity in the tradable sector. Therefore, the appreciation of the real exchange rate from 1994 to 2001 has not generally harmed foreign trade. As long as real appreciation is supported by underlying fundamental variables in the economy, it does not endanger the macroeconomic stability and growth.

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    Paper provided by Latvijas Banka in its series Working Papers with number 2002/01.

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    Date of creation: 28 Nov 2002
    Handle: RePEc:ltv:wpaper:200201
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    Keywords: real exchange rate; foreign trade;

    Find related papers by JEL classification:

    • C20 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - General
    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F10 - International Economics - - Trade - - - General

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    1. Gali, Jordi & Gertler, Mark, 1999. "Inflation dynamics: A structural econometric analysis," Journal of Monetary Economics, Elsevier, vol. 44(2), pages 195-222, October.
    2. Stephen G. Cecchetti & Erica L. Groshen, 2000. "Understanding Inflation: Implications for Monetary Policy," NBER Working Papers 7482, National Bureau of Economic Research, Inc.
    3. Asea, Patrick K & Mendoza, Enrique G, 1994. "The Balassa-Samuelson Model: A General-Equilibrium Appraisal," Review of International Economics, Wiley Blackwell, vol. 2(3), pages 244-267, October.
    4. Frederic S. Mishkin, 2000. "Inflation Targeting in Emerging-Market Countries," American Economic Review, American Economic Association, vol. 90(2), pages 105-109, May.
    5. Takatoshi Ito & Peter Isard & Steven Symansky, 1999. "Economic Growth and Real Exchange Rate: An Overview of the Balassa-Samuelson Hypothesis in Asia," NBER Chapters,in: Changes in Exchange Rates in Rapidly Developing Countries: Theory, Practice, and Policy Issues (NBER-EASE volume 7), pages 109-132 National Bureau of Economic Research, Inc.
    6. Ernesto Hernández-Catá, 1999. "Price Liberalization, Money Growth, and Inflation During the Transition to a Market Economy," IMF Working Papers 99/76, International Monetary Fund.
    7. Canzoneri, Matthew B. & Cumby, Robert E. & Diba, Behzad, 1999. "Relative labor productivity and the real exchange rate in the long run: evidence for a panel of OECD countries," Journal of International Economics, Elsevier, vol. 47(2), pages 245-266, April.
    8. Frederic S Mishkin, 1997. "Strategies for Controlling Inflation," RBA Annual Conference Volume,in: Philip Lowe (ed.), Monetary Policy and Inflation Targeting Reserve Bank of Australia.
    9. Richards, Anthony J. & Tersman, Gunnar H. R., 1996. "Growth, Nontradables, and Price Convergence in the Baltics," Journal of Comparative Economics, Elsevier, vol. 23(2), pages 121-145, October.
    10. Alf Vanags, 1998. "Macroeconomic stabilisation and central bank policy in Latvia," Post-Communist Economies, Taylor & Francis Journals, vol. 10(2), pages 203-215.
    11. Jorge A Chan-Lau & Stephen Tokarick, 1999. "Why Has Inflation in the United States Remained So Low? Reassessing the Importance of Labor Costs and the Price of Imports," IMF Working Papers 99/149, International Monetary Fund.
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    Cited by:

    1. Viktors Ajevskis & Ramune Rimgailaite & Uldis Rutkaste & Olegs Tkacevs, 2012. "The Assesment of Equilibrium Real Echange Rate of Latvia," Working Papers 2012/04, Latvijas Banka.
    2. repec:onb:oenbfi:y:2004:i:2:b:6 is not listed on IDEAS
    3. Lucian Claudiu ANGHEL & Laurentiu-Mihai TREAPAT, 2015. "Main Economic Policies in order to Manage an Optimum Accession of Romania to the Euro Zone," Management Dynamics in the Knowledge Economy Journal, College of Management, National University of Political Studies and Public Administration, vol. 3(1), pages 151-169, March.
    4. Lucian Claudiu ANGHEL & Florina PINZARU & Mihaela DINU & Laurentiu-Mihai TREAPAT, 2014. "Fixing the Central Parity and the Evolution of the Currency within the Exchange Rate Mechanism II in the Countries that Joined the Euro Zone," Management Dynamics in the Knowledge Economy Journal, College of Management, National University of Political Studies and Public Administration, vol. 2(4), pages 21-40, April.
    5. Balázs Égert, 2004. "Equilibrium Exchange Rates in Southeastern Europe, Russia, Ukraine and Turkey: Healthy or (Dutch) Diseased?," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue 2, pages 138-181.

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