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Analysis of large real exchange rate appreciation episodes


  • Zsolt Darvas

    () (Magyar Nemzeti Bank (at the time of writing the study))


In the past three decades several countries of the world have experienced fast and large real exchange rate appreciation, similarly to the recent Hungarian experience. This paper studies macroeconomic policies and outcomes during and after large real exchange rate appreciations. The two main lessons of the paper stresses the importance of the equilibrium real exchange rate and of macroeconomic policies. First, the magnitude of the appreciation itself is not informative to the possible consequences as the relation the to equilibrium real rate matters. Second, macroeconomic policies have a determinant effect on outcomes. For example, in those floating exchange rate regimes when the real exchange rate appreciation proved to be transitory but lead to a permanent reduction of inflation and the external balance did not deteriorate during the appreciation and the output loss was less pronounced than in many exchange-rate based stabilizations, fiscal policies tightened during the appreciation period and nominal wage growth declined parallel with falling inflation.

Suggested Citation

  • Zsolt Darvas, 2003. "Analysis of large real exchange rate appreciation episodes," MNB Background Studies (discontinued) 2003/2, Magyar Nemzeti Bank (Central Bank of Hungary).
  • Handle: RePEc:mnb:backgr:2003/2

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    real exchange rate; macroeconomic policy.;

    JEL classification:

    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • F30 - International Economics - - International Finance - - - General


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