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Productivity Growth and the Real Appreciation of the Accession Countries' Currencies

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  • Kirsten Lommatzsch
  • Silke Tober

Abstract

In the process of catch-up growth the Czech Republic, Hungary and Poland have experienced a transition to the production of higher-quality goods. We incorporate this effect in a theoretical model of exchange rates and econometrically estimate its impact on equilibrium real exchange rates. We find support for our hypothesis that productivity increases in industry can be regarded as one source of the observed PPI-based real appreciation of the accession countries??? currencies. The productivity gains experienced during economic catch-up occur as higher-quality goods are produced and imply an increased export capacity as well as import substitution. To some extent real appreciation can therefore be viewed as an equilibrium phenomenon.

Suggested Citation

  • Kirsten Lommatzsch & Silke Tober, 2004. "Productivity Growth and the Real Appreciation of the Accession Countries' Currencies," William Davidson Institute Working Papers Series 2004-675, William Davidson Institute at the University of Michigan.
    • Handle: RePEc:wdi:papers:2004-675
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    relative productivity growth; catch-up growth; real exchange rates; transition economies;
    All these keywords.

    JEL classification:

    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • P3 - Political Economy and Comparative Economic Systems - - Socialist Institutions and Their Transitions

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