Maintaining Competitiveness Under Equilibrium Real Appreciation: The Case of Slovakia
IMF Working Papers, March 1, 2005
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- Maintaining Competitiveness Under Equilibrium Real Appreciation: The Case of Slovakia
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Bibliographic details
- Authors: Nienke Oomes
- Published: March 1, 2005
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451860849.001
Summary and central conclusion
- The paper evaluates competitiveness in Slovakia and estimates the equilibrium real exchange rate for the koruna.
- Slovak wages and prices were found to have been relatively low even when adjusted for differences in relative income and productivity, indicating an undervalued real exchange rate.
- Recent rapid nominal appreciation has reduced most or all of this undervaluation and has brought the real exchange rate near or above equilibrium.
- The productivity-driven equilibrium real appreciation rate during 2005?09 is estimated at close to 3 percent per year but can be lower with the help of fiscal consolidation.
Key findings
- Wages and prices in Slovakia: relatively low after adjustments for relative income and productivity → suggests an undervalued real exchange rate.
- Nominal appreciation: recent rapid nominal appreciation has largely eliminated the previously observed undervaluation.
- Equilibrium assessment: current real exchange rate is near or above estimated equilibrium.
Quantitative estimate and projection
- Productivity-driven equilibrium real appreciation rate during 2005?09: estimated at close to 3 percent per year.
- Fiscal policy interaction: this equilibrium appreciation rate can be lower with the help of fiscal consolidation.
Policy implications and recommendations
- Monitor real exchange rate developments as rapid nominal appreciation can quickly erode previously observed undervaluation.
- Consider fiscal consolidation as a policy tool to reduce the required equilibrium real appreciation rate driven by productivity.
- Maintain policies that preserve competitiveness as the real exchange rate approaches or exceeds equilibrium.
Maintaining Competitiveness Under Equilibrium Real Appreciation: The Case of Slovakia, Nienke Oomes, March 1, 2005.