| By: |
Candelon,Bertrand;
Kool,Clemens;
Raabe,Katharina;
Veen,Tom,van (METEOR) |
| Abstract: |
In this paper, we estimate fundamental bilateral real exchange rates for a
group of eight accession countries using a panel-cointegration approach for
the period 1993-2003. We document a significant positive link between
productivity levels and the corresponding real exchange rate levels. Future
rises in productivity cannot be excluded on the basis of either our own
analysis or the literature as a whole. Consequently, inflation pressure and
real exchange rate appreciation in the accession countries probably remain a
fact of life in the near future. The extent to which this is a problem for a
fixed nominal exchange rate regime is hard to determine. Price dynamics in the
accession countries are still quite flexible to accommodate substantial real
exchange rate movements even when the nominal exchange rate is rather fixed;
moreover, that price adjustment is mostly an internal process for the
accession countries. Overall we conclude that a fixed exchange rate regime for
each of the accession countries would be feasible in itself, despite possible
future real exchange rate appreciations due to either the Balassa-Samuelson
effect or demand shifts. We find current misalignments to be small, robust and
generally in line with the literature. This implies current exchange rate
levels provide a reasonable indication of the level at which a parity exchange
rate could be set. |
| Keywords: |
international economics and trade ; |
| Date: |
2005 |
| URL: |
http://d.repec.org/n?u=RePEc:dgr:umamet:2005010&r=tra |