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

21 Pages Posted: 7 Mar 2007

See all articles by Balázs Égert

Balázs Égert

Organization for Economic Co-Operation and Development (OECD); CESifo (Center for Economic Studies and Ifo Institute); Université Paris X Nanterre - Department of Economics; William Davidson Institute

Kirsten Lommatzsch

German Institute for Economic Research (DIW Berlin)

Amina Lahreche-Revil

CEPII, Centre d'Etudes Prospectives et d'Info. Internationales, Paris; University of Amiens; Université Paris I Panthéon-Sorbonne - TEAM

Date Written: February 2007

Abstract

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.

Keywords: real exchange rate, equilibrium exchange rate, productivity, tradables, Balassa-Samuelson effect

JEL Classification: C15, E31, F31, O11, P17

Suggested Citation

Egert, Balazs and Lommatzsch, Kirsten and Lahreche-Revil, Amina and Lahreche-Revil, Amina, Real Exchange Rates in Small Open OECD and Transition Economies: Comparing Apples with Oranges? (February 2007). CESifo Working Paper Series No. 1928, William Davidson Institute Working Paper No. 859, Available at SSRN: https://ssrn.com/abstract=968603 or http://dx.doi.org/10.2139/ssrn.968603

Balazs Egert (Contact Author)

Organization for Economic Co-Operation and Development (OECD) ( email )

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CESifo (Center for Economic Studies and Ifo Institute)

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Université Paris X Nanterre - Department of Economics

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William Davidson Institute

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Kirsten Lommatzsch

German Institute for Economic Research (DIW Berlin) ( email )

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Germany

Amina Lahreche-Revil

CEPII, Centre d'Etudes Prospectives et d'Info. Internationales, Paris ( email )

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University of Amiens

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France

Université Paris I Panthéon-Sorbonne - TEAM

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