Real Exchange Rates in Small Open OECD and Transition Economies: Comparing Apples with Oranges?
21 Pages Posted: 7 Mar 2007
Date Written: February 2007
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: Suggested Citation