Real currency appreciation in accession countries : Balassa-Samuelson and investment demand
Fischer, Christoph (10.07.2002)
Numero
8/2002Julkaisija
Bank of Finland
2002
Julkaisun pysyvä osoite on
https://urn.fi/URN:NBN:fi:bof-201408072161Tiivistelmä
The Balassa-Samuelson effect is usually seen as the prime explanation of the continuous real appreciation of central and east European (CEE) transition countries' currencies against their western counterparts.The response of a small country's real exchange rate to various shocks is derived in a simple model.It is shown that productivity shocks work not only through a Balassa-type supply channel but also through an investment demand channel. Therefore, empirical evidence apparently in favour of Balassa-Samuelson effects may require a re-interpretation.The model is estimated for a panel of CEE countries.The results are consistent with the model, plausibly explain the observed real appreciation and support the existence of the proposed investment demand channel.JEL classification: F31, F41, C33
Julkaisuhuomautus
Published in Review of World Economics/Weltwirtschaftliches Archiv vol. 140, no 2 (2004), pp. 179-210