EXCHANGE RATES AND THE MEASUREMENT OF AGRICULTURAL PRICE DISTORTIONS IN CEECs AND OF CEEC-EU ACCESSION COSTS

Exchange rates were heavily distorted under the central planning system in Central and Eastern Europe and are still adjusting in the transition process. The use of nominal exchange rates introduces a bias for international price comparisons and in calculations based on them. We present various exchange rates and discuss their relevance and usefulness for CEEC economic transition studies. We show that calculations of agricultural price distortions, protection rates and budgetary costs of EU-CEEC accession are sensitive to the exchange rate assumptions. More specifically, our simulations of EU-CEEC integration effects show that net exports are substantially smaller and budgetary costs less under the assumption of continued real appreciation of the CEC-4 currencies. However, the calculations also show that even under the extreme assumption of full adjustment to PPPs, the total budgetary costs remain large and GATT commitments on the maximum quantity of subsidized exports are still prohibiting an introduction of an unreformed CAP in the CEC-4.