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Real Exchange Rates in Small Open OECD and Transition Economies: Comparing Apples with Oranges?

  • Balázs Égert

    ()

  • Kirsten Lommatzsch

    ()

  • Amina Lahrèche-Révil

    ()

We find that productivity gains in tradables cause an appreciation of the real exchange rate via both tradable and nontradable prices in the CEE-5 and have no affect in the Baltic countries, while they lead to a depreciation of the real exchange rate of tradables in OECD economies that overcompensates the appreciation due to nontradable prices. Rising net foreign liabilities lead to a real appreciation in the Baltic countries instead of the expected depreciation found in OECD and CEE-5 countries. These differences are due to the different impact of the fundamentals on the real exchange rate depending on the time horizon studied.

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Paper provided by William Davidson Institute at the University of Michigan in its series William Davidson Institute Working Papers Series with number wp859.

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Length: pages
Date of creation: 01 Jan 2007
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Handle: RePEc:wdi:papers:2007-859
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