Determinants of the Real Exchange Rate, Misalignment and Implications for Growth in Poland

Posted: 2 Oct 2000

See all articles by David Kemme

David Kemme

University of Memphis - Economics

Wenyuan Teng

King College, Tennessee

Abstract

Exchange rate misalignment may exacerbate the costs of transition for the former socialist economies. We examine the exchange rate policies of Poland, calculate the real exchange rate based upon the CPI, PPI, wage rates and profits and then calculate misalignment. Purchasing power parity misalignment indicates the zloty was persistently overvalued from December 1990 to May 1999. In contrast, misalignment based upon sustainable macroeconomic fundamentals indicates the zloty is initially overvalued, then undervalued in the mid-1990s. Then, with the advent of the gliding band the zloty becomes overvalued. This measure of currency overvaluation is also negatively correlated with real export growth. Policy makers should be concerned about the growing overvaluation, as real export growth would be expected to decline.

JEL Classification: F0, F4, P5

Suggested Citation

Kemme, David M. and Teng, Wenyuan, Determinants of the Real Exchange Rate, Misalignment and Implications for Growth in Poland. Economics Systems, Vol. 24, No. 2. Available at SSRN: https://ssrn.com/abstract=237993

David M. Kemme (Contact Author)

University of Memphis - Economics ( email )

Memphis, TN 38152
United States
(901)678-5408 (Phone)
(901)678-2685 (Fax)

Wenyuan Teng

King College, Tennessee ( email )

Department of Business Administration and Economics
Bristol, TN 37620
United States

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