Real Convergence in Central and Eastern European EU Member States: Which Role for Exchange Rate Volatility?

Arratibel, Olga; Furceri, Davide; Martin, Reiner

doi:10.2139/ssrn.1219522

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Real Convergence in Central and Eastern European EU Member States: Which Role for Exchange Rate Volatility?

ECB Working Paper No. 929

39 Pages Posted: 3 Nov 2008

See all articles by Olga Arratibel

Davide Furceri

University of Palermo; Organization for Economic Co-Operation and Development (OECD)

Reiner Martin

National Bank of Slovakia

Date Written: September 18, 2008

Abstract

This paper analyzes the relation between exchange rate volatility and several macroeconomic variables, namely real per capita output growth, the credit cycle, the stock of inward foreign direct investment (FDI) and the current account balance, in the Central and Eastern European EU Member States. Using panel estimations for the period between 1995 and 2006, we find that lower exchange rate volatility is associated with higher growth (for relatively less financially developed economies), higher stocks of FDI (for relatively more open economies), higher current account deficits, and a more volatile development of the credit to GDP ratio.

Keywords: EU, Exchange Rate Volatility, Growth, FDI, Credit, Current Account, Catching-up, Convergence

JEL Classification: F3, F4, F5

Suggested Citation: Suggested Citation

Arratibel, Olga and Furceri, Davide and Martin, Reiner, Real Convergence in Central and Eastern European EU Member States: Which Role for Exchange Rate Volatility? (September 18, 2008). ECB Working Paper No. 929, Available at SSRN: https://ssrn.com/abstract=1219522 or http://dx.doi.org/10.2139/ssrn.1219522