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Real Exchange Rates in Central and Eastern Europe : What Scope for the Underlying Fundamentals?


  • Gilles DUFRENOT

    (ERUDITE Univ. Paris 12 & GREQAM Marseille)

  • Balazs Egert

    (National Bank of Austria & William Davidson Institute)


The aim of this paper is to study the the fundamental macroeconomic determinants of both the CPI and the PPI-based real effective exchange rate in 5 selected acceding countries from Central and Eastern Europe, i.E the Czech Republic, Hungary, Poland, Slovakia and Slovenia. The paper is based on the combination of two approaches widely used for transition economies, namely the Behavioral Equilibrium Exchange Rate (BEER) and the Structural VAR. Indeed, a cointegration approach is adopted and the estimated VECM model attempts to connect in a structural way the real effective exchange rate to labor productivity, the relative price of non-tradable goods, public deficit and the current account position. Impulse response functions are subsequently employed to investigate how shock in the underlying fundamentals impacts on the effective real exchange rates.

Suggested Citation

  • Gilles DUFRENOT & Balazs Egert, 2003. "Real Exchange Rates in Central and Eastern Europe : What Scope for the Underlying Fundamentals?," Development and Comp Systems 0309001, EconWPA.
  • Handle: RePEc:wpa:wuwpdc:0309001
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    References listed on IDEAS

    1. Taylor Mark P. & Sarno Lucio, 2001. "Real Exchange Rate Dynamics in Transition Economies: A Nonlinear Analysis," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 5(3), pages 1-26, October.
    2. Coricelli, Fabrizio & Jazbec, Bostjan, 2004. "Real exchange rate dynamics in transition economies," Structural Change and Economic Dynamics, Elsevier, vol. 15(1), pages 83-100, March.
    3. László Halpern & Charles Wyplosz, 1997. "Equilibrium Exchange Rates in Transition Economies," IMF Staff Papers, Palgrave Macmillan, vol. 44(4), pages 430-461, December.
    4. Harbo, Ingrid, et al, 1998. "Asymptotic Inference on Cointegrating Rank in Partial Systems," Journal of Business & Economic Statistics, American Statistical Association, vol. 16(4), pages 388-399, October.
    5. Egert, Balazs & Drine, Imed & Lommatzsch, Kirsten & Rault, Christophe, 2003. "The Balassa-Samuelson effect in Central and Eastern Europe: myth or reality?," Journal of Comparative Economics, Elsevier, vol. 31(3), pages 552-572, September.
    6. Guy Meredith & Menzie D. Chinn, 1998. "Long-Horizon Uncovered Interest Rate Parity," NBER Working Papers 6797, National Bureau of Economic Research, Inc.
    7. Ali M. Kutan & Selahattin Dibooglu, 1998. "Sources of real and nominal exchange rate fluctuations in transition economies," Working Papers 1998-022, Federal Reserve Bank of St. Louis.
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    Cited by:

    1. Kemme, David M. & Roy, Saktinil, 2006. "Real exchange rate misalignment: Prelude to crisis?," Economic Systems, Elsevier, vol. 30(3), pages 207-230, October.
    2. Lipinska, Anna, 2008. "The Maastricht Convergence Criteria and Monetary Regimes for the EMU Accession Countries," MPRA Paper 16375, University Library of Munich, Germany.
    3. Oomes, Nienke, 2005. "Maintaining competitiveness under equilibrium real appreciation: The case of Slovakia," Economic Systems, Elsevier, vol. 29(2), pages 187-204, June.
    4. Richard Frensch & Achim Schmillen, 2013. "The Penn Effect and Transition: The New EU Member States in International Perspective," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 55(1), pages 99-119, March.
    5. Anna Lipinska, 2006. "Monetary regime choice in the accession countries - a theoretical analysis," Computing in Economics and Finance 2006 243, Society for Computational Economics.

    More about this item

    JEL classification:

    • 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
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • P33 - Economic Systems - - Socialist Institutions and Their Transitions - - - International Trade, Finance, Investment, Relations, and Aid

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