Equilibrium Exchange Rates in New EU Members: External Imbalances versus Real Convergence
In new EU members, the accumulation of net foreign liabilities has gone hand-in-hand with real exchange rate appreciations, contrary to intuition. This may be due to the induced effect that capital inflows on productivity and competitiveness (Balassa-Samuelson effect). An extended empirical model comprising relative productivity and net foreign assets is well-suited to capture this indirect, opposite effect of liabilities accumulation on the equilibrium exchange rates for the three largest economies: Poland, Hungary and Czech Republic. The model makes it possible to estimate equilibrium exchange rates and misalignments. Going forward, sustaining high productivity growth will be essential to ensure a smooth transition towards euro membership. Copyright © 2008 The Authors. Journal compilation © 2008 Blackwell Publishing Ltd.
Year of publication: |
2008
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Authors: | Alberola, Enrique ; Navia, Daniel |
Published in: |
Review of Development Economics. - Wiley Blackwell. - Vol. 12.2008, 3, p. 605-619
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Publisher: |
Wiley Blackwell |
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