Growth, Nontradables, and Price Convergence in the Baltics

Author/Editor:

Anthony J. Richards ; Gunnar Tersman

Publication Date:

April 1, 1995

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

This paper reviews the recent real exchange rate appreciation observed in the three Baltic countries. Until now, this phenomenon may be viewed primarily as a consequence of the undervalued real exchange rates of the new currencies. Looking ahead, a tendency for continued real appreciation is to be expected as part of the transition process toward higher income levels, due in part to differential productivity growth rates in the tradable and nontradable sectors. In the absence of an appreciation of the nominal exchange rate, this real appreciation will occur through inflation rates that are higher than in industrial countries. Provided that the current prudent economic policies are continued, such higher inflation will not threaten macroeconomic objectives and may indeed be viewed as an indication that the transition process is progressing as expected.

Series:

Working Paper No. 1995/045

Subject:

English

Publication Date:

April 1, 1995

ISBN/ISSN:

9781451974317/1018-5941

Stock No:

WPIEA0451995

Pages:

40

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