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The Portuguese real exchange rate, 1995-2010: competitiveness or price effects?

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Abstract

We disentangle the extent to which the real exchange rate appreciation in Portugal during 1995-2010 reflected the emergence of wage-productivity misalignments or, instead, changes in the relative price of tradable and non-tradable goods. The available data suggests that the latter effect dominated at the aggregate level. The evidence is consistent with the view that the external imbalance that characterized the Portuguese economy during the 1990s and early 2000s was triggered by the liberalization of capital flows, and not by dysfunctional wage setting institutions. Using the Fundamental Equilibrium Exchange Rate approach, we find that recent oil price shocks played an important role in explaining the real exchange rate overvaluation in Portugal.Classification-JEL:

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  • Miguel Lebre de Freitas & Miguel de Faria e Castro, 2014. "The Portuguese real exchange rate, 1995-2010: competitiveness or price effects?," NIPE Working Papers 12/2014, NIPE - Universidade do Minho.
  • Handle: RePEc:nip:nipewp:12/2014
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    1. Braga de Macedo, Jorge, 1990. "External Liberalization with Ambiguous Public Response: The Experience of Portugal," CEPR Discussion Papers 378, C.E.P.R. Discussion Papers.
    2. Ricardo Reis, 2013. "The Portugese Slump and Crash and the Euro Crisis," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 44(1 (Spring), pages 143-210.
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    Keywords

    real exchange rate; FERER; unit labor costs;

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