The fundamentals behind the real exchange rate developments of the new EU members
Abstract In this paper, we estimate fundamental bilateral real exchange rates for a group of eight accession countries using a panel-cointegration approach for the period 1993-2003. We document a significant positive link between productivity levels and the corresponding real exchange rate levels. Future rises in productivity cannot be excluded on the basis of either our own analysis or the literature as a whole. Consequently, inflation pressure and real exchange rate appreciation in the accession countries probably remain a fact of life in the near future. The extent to which this is a problem for a fixed nominal exchange rate regime is hard to determine. Price dynamics in the accession countries are still quite flexible to accommodate substantial real exchange rate movements even when the nominal exchange rate is rather fixed; moreover, that price adjustment is mostly an internal process for the accession countries. Overall we conclude that a fixed exchange rate regime for each of the accession countries would be feasible in itself, despite possible future real exchange rate appreciations due to either the Balassa-Samuelson effect or demand shifts. We find current misalignments to be small, robust and generally in line with the literature. This implies current exchange rate levels provide a reasonable indication of the level at which a parity exchange rate could be set. Keywords: real exchange rate, misalignments, Balassa-Samuelson, panel cointegration
|Date of creation:||2005|
|Date of revision:|
|Contact details of provider:|| Postal: P.O. Box 80125, NL-3508 TC Utrecht|
Phone: +31 30 253 9800
Fax: +31 30 253 7373
Web page: http://www.uu.nl/EN/faculties/leg/organisation/schools/schoolofeconomicsuse/Pages/default.aspx
More information through EDIRC
|Order Information:|| Email: |
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Harris, Richard D. F. & Tzavalis, Elias, 1999.
"Inference for unit roots in dynamic panels where the time dimension is fixed,"
Journal of Econometrics,
Elsevier, vol. 91(2), pages 201-226, August.
- Tom Doan, . "HTUNIT: RATS procedure to implement Harris-Tzavalis unit root test for panel data," Statistical Software Components RTS00092, Boston College Department of Economics.
- Katerina Smidkova & Ray Barrell & Dawn Holland, 2002.
"Estimates of Fundamental Real Exchange Rates for the Five EU Pre-Accession Countries,"
2002/03, Czech National Bank, Research Department.
- Kateřina Šmídková & Ray Barrell & Dawn Holland, 2003. "Estimates of fundamental real exchange rates for the five eu pre-accession countries," Prague Economic Papers, University of Economics, Prague, vol. 2003(4).
- Ray Barrell & Dawn Holland & Katerina Smidkova, 2003. "Estimates of Fundamental Real Echange Rates for the Five EU Pre- Accession Countries," Macroeconomics 0303016, EconWPA.
- Peter Pedroni, 2000.
"Fully Modified OLS for Heterogeneous Cointegrated Panels,"
Department of Economics Working Papers
2000-03, Department of Economics, Williams College.
- Tom Doan, . "PANELFM: RATS procedure to perform panel data group mean FMOLS," Statistical Software Components RTS00151, Boston College Department of Economics.
- Jörg Rahn, 2003. "Bilateral Equilibrium Exchange Rates of the EU Accession Countries against the Euro," Quantitative Macroeconomics Working Papers 20306, Hamburg University, Department of Economics.
- Crespo-Cuaresma, Jesús & Fidrmuc, Jarko & McDonald, Ronald, 2003.
"The monetary approach to exchange rates in the CEECs,"
BOFIT Discussion Papers
14/2003, Bank of Finland, Institute for Economies in Transition.
- Jesus Crespo-Cuaresma & Jarko Fidrmuc & Ronald MacDonald, 2005. "The monetary approach to exchange rates in the CEECs," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 13(2), pages 395-416, 04.
- Jesús Crespo-Cuaresma & Jarko Fidrmuc & Ronald McDonald, 2004. "The monetary approach to exchange rates in the CEECs," Macroeconomics 0401013, EconWPA.
- Peter Phillips & Hyungsik Moon, 2000.
"Nonstationary panel data analysis: an overview of some recent developments,"
Taylor & Francis Journals, vol. 19(3), pages 263-286.
- Peter C.B. Phillips & Hyungsik R. Moon, 1999. "Nonstationary Panel Data Analysis: An Overview of Some Recent Developments," Cowles Foundation Discussion Papers 1221, Cowles Foundation for Research in Economics, Yale University.
- Kao, Chihwa, 1999. "Spurious regression and residual-based tests for cointegration in panel data," Journal of Econometrics, Elsevier, vol. 90(1), pages 1-44, May.
- MacDonald, Ronald, 2000. "Concepts to Calculate Equilibrium Exchange Rates: An Overview," Discussion Paper Series 1: Economic Studies 2000,03, Deutsche Bundesbank, Research Centre.
- Balazs Egert & Amina Lahrèche-Revil, 2003. "Estimating the Fundamental Equilibrium Exchange Rate of Central and Eastern European Countries; The EMU Enlargement Perspective," Working Papers 2003-05, CEPII research center.
- Kim, Byung-Yeon & Korhonen, Iikka, 2005.
"Equilibrium exchange rates in transition countries: Evidence from dynamic heterogeneous panel models,"
Elsevier, vol. 29(2), pages 144-162, June.
- Kim, Byung-Yeon & Korhonen, Iikka, 2002. "Equilibrium Exchange Rates in Transition Countries: Evidence from Dynamic Heterogeneous Panel Models," BOFIT Discussion Papers 15/2002, Bank of Finland, Institute for Economies in Transition.
- Byung-Yeon Kim & Iikka Korhonen, 2002. "Equilibrium Exchange Rates in Transition Countries: Evidence from Dynamic Heterogeneous Panel Models," Macroeconomics 0212014, EconWPA.
- Virginie Coudert & Cécile Couharde, 2002.
"Exchange Rate Regimes and Sustainable Parities for CEECs in the Run-up to EMU Membership,"
2002-15, CEPII research center.
- Virginie Coudert & Cécile Couharde, 2003. "Exchange Rate Regimes and Sustainable Parities for ceecs in the Run-up to emu Membership," Revue économique, Presses de Sciences-Po, vol. 54(5), pages 983-1012.
- Ronald MacDonald & Cezary WÛjcik, 2004.
"Catching up: The role of demand, supply and regulated price effects on the real exchange rates of four accession countries,"
The Economics of Transition,
The European Bank for Reconstruction and Development, vol. 12(1), pages 153-179, 03.
- Ronald MacDonald & Cezary Wójcik, 2003. "Catching Up: The Role of Demand, Supply and Regulated Price Effects on the Real Exchange Rates of Four Accession Countries," CESifo Working Paper Series 899, CESifo Group Munich.
- Lommatzsch, Kirsten & Tober, Silke, 2004. "What is behind the real appreciation of the accession countries' currencies?: An investigation of the PPI-based real exchange rate," Economic Systems, Elsevier, vol. 28(4), pages 383-403, December.
- International Monetary Fund, 2001. "Interpreting Real Exchange Rate Movements in Transition Countries," IMF Working Papers 01/56, International Monetary Fund.
- Saikkonen, Pentti, 1991. "Asymptotically Efficient Estimation of Cointegration Regressions," Econometric Theory, Cambridge University Press, vol. 7(01), pages 1-21, March.
- Broeck, Mark De & Sløk, Torsten, 2001.
"Interpreting real exchange rate movements in transition countries,"
BOFIT Discussion Papers
7/2001, Bank of Finland, Institute for Economies in Transition.
- De Broeck, Mark & Slok, Torsten, 2006. "Interpreting real exchange rate movements in transition countries," Journal of International Economics, Elsevier, vol. 68(2), pages 368-383, March.
- Im, Kyung So & Pesaran, M. Hashem & Shin, Yongcheol, 2003.
"Testing for unit roots in heterogeneous panels,"
Journal of Econometrics,
Elsevier, vol. 115(1), pages 53-74, July.
- Pasaran, M.H. & Im, K.S. & Shin, Y., 1995. "Testing for Unit Roots in Heterogeneous Panels," Cambridge Working Papers in Economics 9526, Faculty of Economics, University of Cambridge.
- Tom Doan, . "IPSHIN: RATS procedure to implement Im, Pesaran and Shin panel unit root test," Statistical Software Components RTS00098, Boston College Department of Economics.
- Levin, Andrew & Lin, Chien-Fu & James Chu, Chia-Shang, 2002.
"Unit root tests in panel data: asymptotic and finite-sample properties,"
Journal of Econometrics,
Elsevier, vol. 108(1), pages 1-24, May.
- Tom Doan, . "LEVINLIN: RATS procedure to perform Levin-Lin-Chu test for unit roots in panel data," Statistical Software Components RTS00242, Boston College Department of Economics.
When requesting a correction, please mention this item's handle: RePEc:use:tkiwps:0509. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Marina Muilwijk)
If references are entirely missing, you can add them using this form.