Real Exchange Rates in Small Open OECD and Transition Economies: Comparing Apples with Oranges?
Organization for Economic Co-Operation and Development (OECD); CESifo (Center for Economic Studies and Ifo Institute for Economic Research); Université Paris X Nanterre - Department of Economics; William Davidson Institute
German Institute for Economic Research (DIW Berlin)
CEPII, Centre d'Etudes Prospectives et d'Info. Internationales, Paris; University of Amiens; Université Paris I Panthéon-Sorbonne - TEAM
CESifo Working Paper Series No. 1928
William Davidson Institute Working Paper No. 859
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.
Number of Pages in PDF File: 21
Keywords: real exchange rate, equilibrium exchange rate, productivity, tradables, Balassa-Samuelson effect
JEL Classification: C15, E31, F31, O11, P17working papers series
Date posted: March 7, 2007
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