Equilibrium Exchange Rates in Transition Economies
November 1, 1996
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Summary
A stylized fact of the transition process is an early profound exchange rate depreciation followed by continuing real appreciation. Absent historical reference points, it is difficult to judge whether the real appreciation is threatening competitiveness. This paper interprets the stylized facts and offers estimates of the equilibrium real exchange rate based on an international comparison of dollar wages and on a study of the dynamics of real exchange rates in several transition economies. The results suggest that the process of real appreciation is a combination of a return to equilibrium following the early overshooting and equilibrium appreciation.
Subject: Balance of payments, Current account, Exchange rates, Foreign exchange, Inflation, Labor, Prices, Real exchange rates, Wages
Keywords: Africa, Asia and Pacific, Central and Eastern Europe, Current account, dollar wage, equilibrium exchange rates, exchange rate regime, Exchange rates, Inflation, inflation rate, managed float, nominal exchange rate, rate appreciation, rate depreciation, rate of exchange, Real exchange rates, Southeast Asia, undervalued exchange rate, Wages, Western Europe, WP
Pages:
40
Volume:
1996
DOI:
Issue:
125
Series:
Working Paper No. 1996/125
Stock No:
WPIEA1251996
ISBN:
9781451854794
ISSN:
1018-5941
Notes
Also published in Staff Papers, Vol. 44, No. 4, December 1997.
